Trust

Over the past 50 years the cost of nursing home care has risen from about $800 per month to over $10,000. The result has been that people looked for ways to avoid this cost and save their assets to pass on to their children. People tried various means to save their assets but the government would look back three years to recapture any assets that were removed from the estate. About 20 years ago this look back period was increased to five years. Any plan must take into account this five-year period. There are three popular approaches to avoid the cost of nursing homes and all three are subject to the five year look back rule, so to be effective they must be done five years in advance of the need for nursing care. The first is to give your house away, normally to your children. This is simple. There are three forms that must be filed at the courthouse. The first is certificate of trust, one for each spouse, then an affidavit of trust signed by both and a quit claim deed or warrantee deed signed by both. The second is a life estate. This is an irrevocable trust that allows the home owners to stay in the home as long as they want and at their deaths the home passes to the beneficiary. The home owner must continue to pay the taxes, insurance and maintenance. The advantage over gifting is that the house will get a stepped-up basis at later sale. For example, if the value of the house at the time the trust is funded is $400,000 and later the value has increased to $600,000 there will be no capital gain. With gifting this is not the case and taxes must be paid on the gain. This should be done by an attorney. The third and best option is a Medicaid Asset Protection Trust. This trust can accept real estate and other assets like cash, stocks, bonds and CD’s. IRA’s and 401k’s can be put in they must be cashed out and the taxes paid first. Term life insurance policies need not go into the trust since they are not counted as accountable assets by Medicaid.