When structuring an estate plan, the primary focus of many New Jersey residents is a smooth transition of wealth to the loved ones left behind. In many cases, this is a surviving spouse, who will be entrusted to pass on any remaining assets to children and grandchildren. This approach fails to take into consideration the chance that a surviving spouse could eventually require some form of residential medical care, which can have a devastating impact on a family’s finances if proper asset protection planning is not in place.
The cost of nursing home or rehabilitative care is astounding. Many families rely upon Medicaid to help cover the cost of residential care, but are unaware of the requirements that must be met before such coverage becomes effective. In order to qualify for Medicaid, an individual or family must “spend down” their assets to a very low level. Once those assets have been depleted, Medicaid will kick in and cover the majority of residential care costs. By that time, however, the family is left with little in the way of assets and virtually no possibility of passing down an inheritance.
One way to protect assets from this outcome involves the creation of an irrevocable trust. Assets placed within such a trust are no longer the property of the original owner and, instead, become the property of the trust itself. In this way, one’s children and grandchildren are still able to inherit those assets, while the parent or parents will be eligible for Medicaid coverage.
In order for this asset protection approach to be effective, a carefully structured set of legal documents must be created. An irrevocable trust is just one component of a larger plan and is not a sufficient estate planning option in and of itself. Anyone in New Jersey who wishes to learn more should contact an estate planning attorney to discuss all available options before determining a course of action.
Source: greenbaypressgazette.com, “Review estate plan often to protect beneficiaries“, Carissa Giebel, June 29, 2015