The job of a Trusts & Estates attorney is not only to write Wills and Trusts for clients – it also includes advising clients how to be preserve assets, what we like to call Asset Protection.
Asset Protection planning can take many forms –
Tax Planning: With tax planning, the goal is to minimize taxes, thereby preserving assets. Tax planning permeates everything we do as Trusts & Estates attorneys. For example, if a client wants to leave a house to his son, there are several ways this can be done. The client could simply write a new deed and transfer the house to the son, the client could transfer title to the house to the son and reserve a life estate for himself, the client could write a Last Will and Testament which specifies that the son should have the house when the client dies, or a client could create a trust for the benefit of his son and transfer the house into the trust. While understanding the mechanics of the above actions may be somewhat simple, the tax consequences of each action must be explored. Without going in the specifics of the tax ramifications for each above action, some of the tax implications at play are: 1) continued receipt/loss of real property tax exemptions (STAR, Veterans Exemptions, etc.), 2) loss/preservation of cost-basis step up, and 3) proper reporting of income tax, to name a few.
Medicaid Asset Protection Planning: Medicaid Asset Protection Planning is the process of advising clients to structure their assets in such a way to best ensure the client will receive Medicaid benefits if/when needed without having to first impoverish himself/herself.
The most common Medicaid Asset Protection Planning tool is the Irrevocable Medicaid Asset Protection Trust (“MAPT”). Due to the way a MAPT is structed, any asset transferred into a MAPT will start the 5-year look back period running from the date of transfer into a MAPT. The whole idea behind this type of planning is to encourage a younger, healthier client to transfer as many assets as he/she is comfortable parting with into a MAPT, and thereby start the 5 year look back period running for these assets. Assuming the client does not require nursing home care within 5 years from the date of transfer into the MAPT, the client will not be required to contribute these assets toward his/her cost of care, thereby preserving these assets for the client’s intended beneficiaries.
A second common form of Medicaid Asset Protection Planning involves transferring assets to loved one instead of to a Medicaid Asset Protection Trust. While this form of planning can be highly effective, it is also fraught with peril, so before electing this option, a client is well advised to seek the guidance of a knowledgeable asset protection attorney.
Creditor Asset Protection: There are several ways to protect your assets from a potential creditor. A few ways to do so is by transferring assets away from a spouse who is considered “high exposure.” A second way to protect assets against potential creditors is by creating a trust or trusts into which at risk assets are transferred. A third way to protect assets against potential creditors is the creation of corporations and LLCs. When considering the above options, it’s always advisable to speak with an attorney knowledgeable in asset protection – though the above methods of asset protection may seem simple, if executed incorrectly, all asset protection can be lost and, to further complicate matters, lawsuits from creditors are likely.
Asset Protection Planning for Children/Beneficiaries: While perhaps not the first thing that comes to mind when thinking about Asset Protection Planning, working with clients to ensure their children’s, or other beneficiaries’, inheritances are not subject to the claims of the child’s creditors is crucial. There are several ways a child’s inheritance can be protected from the child’s creditors, but by far the most common was is by setting up creditor protected trusts. Creditor protected trusts can take many forms and can be either standalone trusts or trusts written into a client’s Last Will and Testament, known as a testamentary trust. Examples of such trusts are: 1) a minor’s trust, which is used to shield a child’s inheritance from creditors until the child reaches a certain age predetermined by the client; 2) a supplemental needs trust, used to ensure a special needs child continues to qualify for government benefits despite receiving an inheritance and; 3) a discretionary trust, by which a client chooses a trustee to manage a child’s assets and apply such assets directly for the benefit of such child without having to hand the wayward child cash.