When and why do you need a trust?

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260chrisb
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When and why do you need a trust?

Post by 260chrisb »

I'm just starting to do some research but thought I would pose the questions here. My girlfriend's Father passed a year ago and her mother is contemplating advice from an attorney that a family member has used in the past to set up a revocable trust to protect her assets and house from probate when she passes and from being taken from the four heirs to cover possible Medicaid expenses. Aside from a little cash, a car, and whatever is in her house, she has only the house as her primary asset which is worth maybe 150K. At about 2K to set this up (which is money she really doesn't have), the questions are; does she really need this and what purpose does a trust serve? I know it's a broad topic but if you've had experience, have advice, or suggestions as to the best source of info it would be appreciated.
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bertilak
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Re: When and why do you need a trust?

Post by bertilak »

260chrisb wrote: Sat Jan 25, 2020 10:15 am I'm just starting to do some research but thought I would pose the questions here. My girlfriend's Father passed a year ago and her mother is contemplating advice from an attorney that a family member has used in the past to set up a revocable trust to protect her assets and house from probate when she passes and from being taken from the four heirs to cover possible Medicaid expenses. Aside from a little cash, a car, and whatever is in her house, she has only the house as her primary asset which is worth maybe 150K. At about 2K to set this up (which is money she really doesn't have), the questions are; does she really need this and what purpose does a trust serve? I know it's a broad topic but if you've had experience, have advice, or suggestions as to the best source of info it would be appreciated.
I know of two purposes:
  • (as you have already mentioned) protect the money from being confiscated by Medicaid. There is, I think, a catch to this: a "look back" period where the money, even though in a trust (or even given away as a gift), can still be confiscated. ("Confiscated" is probably the wrong word but it all I can think of at the moment.)
  • The terms of the trust can extend one's control of how the money is spent and invested (and probably other things) past one's death.
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Billionaire
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Re: When and why do you need a trust?

Post by Billionaire »

From my limited experience/exposure, I would say your mom, for the purpose of qualifying for medicaid, is not a candidate for a trust. I believe most nursing homes will require a period of time for her to pay the full daily/monthly rate, before assigning her a medicaid room. It can be as high as a two year waiting period. At $300.00 per day, that comes to $219,000 for two years.
Money Market
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Re: When and why do you need a trust?

Post by Money Market »

To protect your heirs against divorcing spouses or to prevent spendthrift heirs from blowing it all unproductively.
CurlyDave
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Re: When and why do you need a trust?

Post by CurlyDave »

Even for smaller estates, avoiding probate is an excellent reason. Probate costs are usually a percentage of the estate, and vary from place to place, but 10% is not an unreasonable guess.

Since the primary asset is a house it may be possible to avoid probate on that by holding title in the correct manner. In Oregon we hold title to our residence with a "Transfer on Death" deed.
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bertilak
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Re: When and why do you need a trust?

Post by bertilak »

Money Market wrote: Sat Jan 25, 2020 11:22 am To protect your heirs against divorcing spouses or to prevent spendthrift heirs from blowing it all unproductively.
And if you have 6 and 8 year old heirs who knows if they will be spend-thrift or not!
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Cpadave
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Re: When and why do you need a trust?

Post by Cpadave »

I don’t think a revocable trust protects against medicate or assets. You would need a irremovable trust for that. Revocable trust does help with probate, but there are other ways to accomplish that.
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Re: When and why do you need a trust?

Post by bsteiner »

CurlyDave wrote: Sat Jan 25, 2020 11:28 am Even for smaller estates, avoiding probate is an excellent reason. Probate costs are usually a percentage of the estate, and vary from place to place, but 10% is not an unreasonable guess.
...
You would need either a Will contest or a small estate just over the limit for a small estate proceeding before it would cost anywhere near 10% to probate the Will.

Executors are entitled to be paid but the executors are often the spouse or children and they often waive their fees.

Probating the Will is usually a small part of the work in administering an estate, so the legal fees are usually about the same regardless of whether you have to probate the Will.
NotWhoYouThink
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Re: When and why do you need a trust?

Post by NotWhoYouThink »

How likely is it that she will stay in the house until she dies? It's probably more likely that she would eventually sell it and either move in with one of the kids, or into a senior community or nursing home.

Probably she is premature talking to the attorney about a trust. First she should talk with family about how she plans to live out her life, and then talk with an attorney about whether anything more is needed to accomplish that.

Does she have a will? Has she named anyone Power of Attorney for her financial or health care? Those are likely more urgent than the trust decision.
senex
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Re: When and why do you need a trust?

Post by senex »

260chrisb wrote: Sat Jan 25, 2020 10:15 am ...her mother is contemplating advice from an attorney that a family member has used in the past to set up a revocable trust to protect her assets and house from probate when she passes and from being taken from the four heirs to cover possible Medicaid expenses.
If the attorney told you a revocable trust would increase Medicaid benefits, I’d be skeptical of that attorney. Search the web for “revocable trust Medicaid” and you will find many reputable links saying the opposite. In many circumstances, a trust that is revocable is considered still your money.

Also, you can find many horror stories about Medicaid nursing homes. You may want to consider using her money to improve her life. Even if she is stubborn, you can figure out ways to spend her money on her care without her knowing.

Probate expense and difficulty varies widely by state. Probate does take a while, and a trust would help with that, if immediate access is a concern.

If you want to inherit in trust (which to me seems overkill for approx 40k each) you could do so via a testamentary trust. I don’t think a revocable trust has any advantages there (except for probate delay, as mentioned).
JKD GUY
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Re: When and why do you need a trust?

Post by JKD GUY »

".....does she really need this and what purpose does a trust serve?"

Only she and the family can decide if she "really needs it". An irrevocable trust would protect her assets in the event she were to go to a nursing home to receive care and not be able to return to her home. The state will attempt to retrieve funds to cover the cost of providing her care during her stay. She may not necessarily need such a trust due to her income/assets.

Consider her age, health, etcetera which may be helpful in determining how soon she may need a trust drafted. Depending upon the state in which she resides, there will be a 3-7 year "look back" period in which the state has a right to her assets to cover expenses. She may or may not be well under the Medicaid Asset Limit. In any event, it would behoove you or her to consider seeking advice from an elder attorney/estate attorney versed in the aforementioned as to whether she is well below the limits and needs it or not. Consider also that she should have a Medical Power of Attorney as well.

On a personal note, I'm an occupational therapist that travels the country primarily rehabbing patients in SNFs (nursing homes). Many patients come in thinking they will get short-term rehab and then go directly home. Most do but there are a portion who are unable to due to decreased independence and become residents. Most SNFs I've been to are not a place that you would want to live out the rest of your days!

This may be somewhat helpful
https://www.medicaidplanningassistance. ... e-my-home/
"Dishonest money dwindles away, but whoever gathers money little by little makes it grow" Proverbs 13:11
RadAudit
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Re: When and why do you need a trust?

Post by RadAudit »

Money Market wrote: Sat Jan 25, 2020 11:22 am To protect your heirs against divorcing spouses
+1

Won't be around to find out if it is true or not - but, at least, I think I'll have given them the chance to avoid that drama.
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The cavalry isn't coming, kids. You are on your own.
NotWhoYouThink
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Re: When and why do you need a trust?

Post by NotWhoYouThink »

Depending upon the state in which she resides, there will be a 3-7 year "look back" period in which the state has a right to her assets to cover expenses.
That's not quite the whole story. The look back period is to determine whether or when Medicaid payments to nursing homes might start. If the patient has given away money in the last 5 years, Medicaid will not start paying for the patient's care. They won't raid the trust or try to take back the assets, they just will refuse to pay, and the nursing home will refuse entry to the patient if neither the family nor Medicaid will pay. So the family is on the hook to pay until the bills add up to the amount that was given away. After that, the family can again apply to Medicaid.

The claw back happens if the patient still owns a home when the Medicaid payments start. That might happen for a married couple when only one of them needs skilled nursing care but the other is still in the home, so that would not affect OP's girlfriend's family (unless mom remarries). It can also happen if a caregiver, say one of Mom's other kids, moves in with her and cares for her for a long period of time, thus saving the taxpayers the care expenses. In that case sometimes Medicaid won't force the house to be sold until the community spouse or caregiver dies or is ready to sell, but will still "claw back" the taxpayer-paid expenses from the house sale.
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TomatoTomahto
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Re: When and why do you need a trust?

Post by TomatoTomahto »

260chrisb wrote: Sat Jan 25, 2020 10:15 am . . . her mother is contemplating advice from an attorney that a family member has used in the past to set up a revocable trust to protect her assets and house from probate when she passes and from being taken from the four heirs to cover possible Medicaid expenses.
1. Protecting the heirs’ inheritance should be the least of her worries.
2. Why shouldn’t the funds be used for providing medical assistance?
3. Run from that attorney.
4. The objective should be that the widow gets to use her assets to provide the highest quality of life possible for herself.
Okay, I get it; I won't be political or controversial. The Earth is flat.
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Re: When and why do you need a trust?

Post by LookinAround »

senex wrote: Sat Jan 25, 2020 1:12 pm You may want to consider using her money to improve her life. Even if she is stubborn, you can figure out ways to spend her money on her care without her knowing.
+1

We did that with Dad. He'd always insist we don't spend any money from his estate for his care. So we'd just tell him Medicare was paying for anything done. He was happy. And we (his children) were happy.
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Re: When and why do you need a trust?

Post by Gnirk »

TomatoTomahto wrote: Sat Jan 25, 2020 3:20 pm
260chrisb wrote: Sat Jan 25, 2020 10:15 am . . . her mother is contemplating advice from an attorney that a family member has used in the past to set up a revocable trust to protect her assets and house from probate when she passes and from being taken from the four heirs to cover possible Medicaid expenses.
1. Protecting the heirs’ inheritance should be the least of her worries.
2. Why shouldn’t the funds be used for providing medical assistance?
3. Run from that attorney.
4. The objective should be that the widow gets to use her assets to provide the highest quality of life possible for herself.
👍
Old Sage(brush)
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Re: When and why do you need a trust?

Post by Old Sage(brush) »

I would think on number 4, assuming she is of sound mind, the objective should be to use her assets as she desires. If she’d like to spend less, be less comfortable and leave an inheritance, isn’t that her decision?
petulant
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Re: When and why do you need a trust?

Post by petulant »

Well, there are a couple different ways the trust affects Medicaid and the house: receiving benefits, then the Medicaid clawback. On the first point, having a large asset, or the proceeds from sale of the asset, could affect Medicaid eligibility for long-term care. Generally, many states allow a person to keep a primary residence, so it's a non-counted asset. The exact rules for who has to keep living in the house or the "intent to return" to make it a non-counted asset may vary from state to state.

The second issue is "estate recovery" or the Medicaid clawback. After a Medicaid recipient passes away, many states will sue to recover assets owned by a Medicaid recipient's estate to help cover Medicaid expenses. So long as the estate still has ownership of assets, the state may try to recover it, even it was previously a non-counted asset, like a house.

That means different strategies may be relevant to one or both of these steps. For example, placing an asset in a revocable trust will probably not affect whether the asset is considered for receiving benefits. However, the revocable trust may cause the house to exit the estate automatically upon the Medicaid recipient passing away, guarding the asset against Medicaid clawback. This depends on the state, however. A state may have amended its Medicaid clawback laws to create a claim against the asset even after transferred to the trust beneficiary.

Thus, the revocable trust will probably not affect eligibility to receive Medicaid, but the attorney's advice could be reasonably designed to protect the house from Medicaid clawback in the future under the specific state's applicable law.
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