Nevada Asset Protection Trusts - New Statute Strengthens Asset Protection Laws

When you think of Nevada, ways to lose your money, not keep it, may first come to mind as you think about the Las Vegas strip, casinos, and all those games of chance.  However, for attorneys counseling clients on how to keep control of their assets, Nevada is one of the best jurisdictions out there.  Why?  The Nevada legislature has made it a goal to attract new business by creating laws that allow people to legally protect their assets from unknown claims that arise in the future.

How so?  In Nevada, you can create a trust for the benefit of yourself and your family, and future creditors cannot seek payment from the assets in the trust.  This can be very attractive for successful business owners or professionals such doctors and lawyers who have a higher than normal risk of liability claims.  Oh, and Nevada has no state level income tax, so assets in Nevada Trust may pay less tax on earning then if those same assets were located here in New Jersey or New York.

The Nevada Trust Reporter advises that the Nevada legislature has taken steps to strengthen this asset protection law through newly signed legislation that further bolsters their assets protections laws starting October 1, 2011.  The article gives a detailed overview of relevant legislative changes.

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Wall Street Journal is Wrong that Seniors want to "Game" Medicaid

Over the weekend the Wall Street journal ran an article on elder law  planning entitled "Inoculating Estates From Health Costs". While I'm always happy to see an article about elder care planning in the news because it's such a critically important and mis-understood problem, in this article the Wall Street Journal missed the mark.

The article opens as follows:

Should you give away your nest egg to your heirs—and then stick Medicaid with your nursing-home tab when the time comes? Outrageous though it might seem, it is a perfectly legal estate-planning strategy.

 The author seems to think that this is what Medicaid asset protection planning is all about -- happily giving away millions in assets so you can "stick it" to the government should you get sick. This assumption couldn't be further from the truth.

The vast majority of clients I see who seek elder care advice from an attorney are not rich -- they typically have a modest home that they have owned for 40+ years which has appreciated in value primarily because of its location in Northern New Jersey. They may have $100,000 to $300,000 in savings - they may have less or none. They are generally living off of the fixed income of Social Security, a small pension, and income off their meager assets, in the most expensive state in the country. Real estate taxes for that modest home easily range between $6000 and $15,000 per year.  Given current interest rates, the income off of a $100,000 CD may be approximately $4000 a year (which might cover part of their real estate taxes).

The clients and audiences I speak to about elder care planning are retired -- they generally worked their whole lives for one company or a small business, and are falling further and further behind every year as promises made about pensions and healthcare are reneged upon, or the companies that they work for go out of business, while living expenses, and most dramatically health care expenses, spiral beyond their means. They typically have little or no debt, because it was always important to them to pay their bills. Many are veterans, because they cared enough to serve their country.  They're scared - scared that they might lose their house, scared that their spouse will not be able able to financially survive if they get sick, scared that their illness might bankrupt their children.

And let's talk about the author's assumptions about how "great" it is to be on Medicaid should you get sick.  In order to qualify for Medicaid, you must have less than $4000 of assets in your name. When was the last time you had less than $4000 of assets? Needing Medicaid means that you are stripped of all financial security whatsoever. Do you want to ask your kids for money whenever you need it? Well, neither do my clients.  Furthermore, under Medicaid, your choice of care is limited -- generally Medicaid only pays for care in an institutionalized setting (i.e. nursing home), and will not pay for you to be cared for in your home (even though that will cost less). So, not only have you been stripped of all your finances, but you are also stripped of the comfort and dignity of aging and dying at home. Gee, doesn't that sound like something you should "plan for"?

So why does it matter to plan to pay for long-term care for yourself? Well, nursing homes in New Jersey easily run at $10,000 after-tax dollars a month. That's four times as much as you might pay for tuition for a single year of a college education. Our seniors didn't plan for this -- heck, those of you reading this right now have not planned for this. It is mind-bogglingly expensive and could wipe you out financially.

So, should the result be to punish people for getting old and getting sick before they die?  Does a person "deserve" to be institutionalized because they didn't "strike it rich" during their working years?  Or, should our seniors be afforded the most dignity and security that they can in the face of a whole host of bad choices, each one worse than the one before it?

Sure, there are people out there who "game" the system -- but that's called fraud, and there are civil and criminal penalties to address that. The seniors that I talk to just don't want to be scared anymore -- they want to have a sense of security about their future, to know what it could cost them if they get sick, and to know how it is that they're going to pay for it. The Wall Street Journal article uses far too wide of a brush -- don't paint those seeking education to make informed decisions about a harsh reality as leeches on society.

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Talking to Your Parents About Money

Money is always a touchy subject - particularly when you are an adult child trying to see if your adult parents need help.  I was featured in an article in Money Magazine this month about this very subject: "How to Talk Money with Mom and Dad".  

The market plunge has not just effected you, but everyone around you.  For elderly parents, they likely won't make up 20% to 40% losses in their lifetimes. Their financial pie is smaller, but their potential long terms needs are only growing in cost.  Couple this with the fact that social security payments are not increasing this year, and likely not next , and mom and dad might be facing a financial bind.

One key to remember is that while your parents may be elderly, unless incompetent, they are still entitled to make their own decisions - even if that means they are making bad ones in your opinion (I suggest to adult children that  they think back to their teenage years when their parents supported their decisions - misguided or not).  Your role may be to educate your parents about risks they  may not be aware of (stairs in the house, need for a caregiver, risky investments, etc.) and suggest solutions to those risks.  To do that, you may need to educate yourself as to what are true costs of aging, and what might be hype (ie: if dad goes into a nursing home, mom will definitely lose the house).  At our office we facilitate these conversations by putting recommendations in writing to be circulated to all family members, and  having the parents and children attend at least one meeting (in person or on a conference call) to get everyone on the same page in terms of asset protection planning.

Can a Medicaid Annuity be the Answer?

Home In today's USA Today, Matt Kranz answers a question about asset protection:

Q: My father may be put into a nursing home and would like to protect his investments, including his home and $250,000 in cash and stocks. Is there a way to do this?

Matt's first point is a good one, "In hindsight, the best thing to have done would have been to start planning farther ahead. "  However, the reality is that most families don't see the need for or value in asset protection planning until the crisis is upon them.  Then families ask the question posed above.

So what is to be done in this situation?  One solution Matt speaks about is combining a gift and a "Medicaid Annuity".  I have detailed the concept below.  The problem?  While Medicaid Annuity planning may be effective in California, it is of very limited used her in New Jersey.  In the recent case of N.M. v. Div. of Med. Assistance & Health Services the court found that New Jersey may consider as a countable resource the value of the income stream from a "Medicaid Annuity" purchased by a community spouse. An excellent summary of the case can be found on Don Vanarelli's blog.

If a Medicaid Annuity worked in New Jersey for asset protection planning, this is what it might be structured as:

Otherwise, [Michael Gilfix of elder law specialists firm Gilfix & La Poll Associates of Palo Alto, Calif.] [suggests your father might consider trying to protect some assets by using a combination of an annuity and gifts. Let's assume the cost of a nursing home is $5,000 a month and your father's monthly income is $1,000 including Social Security. With the $250,000 cash in the estate, your father might give a gift of $125,000 to a relative. That exceeds the $13,000 annual exclusion for gifts. However, your father could avoid gift tax on the $125,000 by claiming $112,000 of his $1 million lifetime gift tax exclusion, Gilfix says. He would need to file a 709 gift tax return with the IRS.

The $125,000 gift would make your dad ineligible for Medicaid reimbursement for 22 months, Gilfix estimates. So, with the remaining $125,000 in the estate, your father could buy an annuity with a 22-month term so it pays $4,000 a month.

Your father would qualify for Medicaid, since there would be no assets in the estate. And the annuity would cover the cost of the nursing home for 22 months. After that time, your father would qualify for Medicaid. Meanwhile, the $125,000 gift would be protected, Gilfix says.