Law News and Tips

Elder Law Planning

Fred Vilbig - Wednesday, October 04, 2017

Elder Law Planning

 

ELDER LAW PLANNING:

PROCEED WITH CAUTION 

Fred L. Vilbig © 2017

     “Elder Law” keeps popping up, and not in a particularly good way.

     I’ve recently met with a couple of clients who as part of an elder law plan put together an irrevocable trust and transferred most of their assets into it. The problem with this plan is that it is basically irrevocable. Although the makers of the trust typically retain the right to the trust income, they are irrevocably giving away the principal, the underlying assets. One of the clients had their air-conditioner go out after they gave everything away, and they didn’t have enough money to pay to fix it. Things got hot. Another client didn’t do the math right and ran out of money.

     For anyone in this predicament, there may be a way out, but it does cost money. It also requires the cooperation of everyone involved. The trust makers and all the beneficiaries (this even includes the kids who now have a right to the principal) may be able to enter into what is called a “nonjudicial settlement agreement” (an “NJSA”), but depending on the situation, an NJSA may not work. The other alternative is to go to court. Never a good thing.

     Elder Law planning requires some careful, conservative calculations. Clients need to make sure that if they irrevocably put their savings into a trust, they will still have enough money to live on and to meet any reasonably foreseeable emergencies. It may be that they can only put part of their savings into such a trust and keep part of it out as a rainy day fund. Of course, assets that are left out could be lost to pay for medical costs, but I’d rather have clients run that risk than to just run out of money.

     Another issue clients need to consider is what of their assets can be transferred into an irrevocable trust. For instance, if you transfer an IRA (many times a client’s largest asset besides their house) into an irrevocable trust, that constitutes a taxable event which accelerates all the unpaid taxes on the entire amount. That’s probably a bad plan. It’s questionable (and probably ill-advised) whether clients can transfer their homes into an irrevocable trust while they are still living there. You probably can transfer life insurance in, but then you have to figure out how premiums will be paid. It gets complicated.

     In any event, irrevocable income trusts can be useful planning tools, but they are not for everyone. Clients need to plan very carefully before creating one. After all, they are irrevocable.

Contact Fred now about your situation. The first consultation meeting is free.

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