Asset Protection 101

legal-asset-protectionWe all are familiar with this scenario: Mr. Jones is a widower with three children, but only one of them live in the area. Then, in the early hours, Mr. Jones falls and breaks a hip. He goes to the hospital. Following a two-week stay, instead of going home, Mr. Jones is sent to a rehab facility. He recovers but his condition doesn’t improve. Going home is not an option for Mr. Jones at this point; the only viable option left for the Jones family is to send dad to a nursing home.

Questions that hadn’t been even been thought of in the least arise:

How will the nursing home be paid?
What will happen to dad’s house?
Who will take care of dad’s banking matters?

A lot of the headaches the fabricated Jones family and real families face every day could’ve been avoided if the parties involved had the foresight to do some preplanning. Preplanning is a broad term, an umbrella for a variety of financial and legal options, such as having a will and Power of Attorney; whether there are pre-paid funeral plans; and irrevocable trust, for example. One aspect that needs to be addressed early on is the simple matter of asset protection.

Creating An Asset Protection Plan

Asset protection is a key element in estate planning and the Medicaid planning process, which, in a situation like the fictitious Mr. Jones, is a viable option that has to be seriously considered. The asset protection process doesn’t hide assets; instead, it legally secures and protects assets beyond the reach of creditors, government agencies and even family members. Assets can include bank accounts and other financial tools, wages and income to life insurance, jewelry, vehicles, real estate holdings and other miscellaneous assets and holdings.

By creating a plan before its necessary, a person safeguards his or her wealth.

Asset protection planning in the context of Medicaid eligibility usually involved pre-crisis and in-crisis planning in the context of a medical emergency, or timely planning ahead to maximize opportunities to shelter income and assets for loved ones against the high cost of long-term nursing home care. In Mr. Jones’ case, for example, his family is in crisis mode, and needs to take immediate action to protect assets: the house, property, bank accounts, etc…, and figure out a way to pay for the nursing home stay.

For families that aren’t in crisis mode, there is time to get, for lack of a better phrase, their ducks in a row so if and when the other shoe drops and a Medicaid application needs to be filed, the family isn’t scrambling to find documents or is surprised to learn about a long-forgotten about insurance policy that could affect dad’s Medicaid eligibility.

Asset Protection Misconceptions

There is a common misconception that people who are engaged in asset protection are wealthy – significantly wealthy. That’s not the case. While some families seek to preserve their assets for their children and grandchildren, most seniors want to protect their home and assets – things they’ve worked hard their entire lives for – from being signed over to a nursing home. In Indiana and Kentucky, the average nursing home cost is approximately $200 a day, or $6,000 a month. If you’re paying for a nursing home stay out of pocket, it would only take months before your life savings is spent.

All seniors should be concerned about the protection and preservation of their assets. In 2010, there were 40 million people age 65 and older living in the United States, accounting for 13 percent of the total population. The Baby Boomer generation (1946 – 1964) started turning 65 in 2011, and the number of older people will increase dramatically during the 2010 – 2030 period. With statistics like that, it’s not a stretch of the imagination to realize most of these people will most likely use institutional care, such as a nursing home, as some point.

It’s common for seniors to be hesitant to engage in – or even talk about! – asset protection because they do not wish to give up control of their assets. They have been in control of their finances for 40+ years, why change that now? It’s not about relinquishing control, but more about planning for the future, your future. You have maintained a certain standard of living, and want that to continue.

Transferring liquid assets to a trust over which they have no control could have an impact on your lifestyle. However, with proper planning, the transfer of the family home, for example, into an asset protection trust can be a seamless transaction that does not affect a senior’s lifestyle at all.

Asset Protection & Medicaid

When looking at the whole picture of asset protection, the issue of applying for Medicaid needs to realistically be addressed. Asset protection planning helps you preserve your money. You can transfer your assets (house, car, savings, collectibles) to close family members or to an irrevocable trust to lessen the amount available and qualify for Medicaid benefits sooner. Improper transfers that occur within five years (known in the business as the five-year look back) or nursing home admission (giving money away to family members, for example) will create a period on ineligibility for Medicaid.

When it comes time to sit down and start asset protection, it’s ideal to work with two key components: an attorney and financial planners. The attorney, preferably an elder law attorney, should be adept at rearranging assets, and can draw up necessary documents, such as the trust, Power of Attorney or a will. The financial planners can examine a person’s finances, review and present options that are best available to that person at the time. Proper planning can guarantee security for your significant assets, at any time, even after a family member has entered a nursing home.