Should a living trust be created to shelter assets from costs of long-term nursing care?

This week, that question gets addressed by two of our local "Ask the Experts" writers: certified financial planner Kevin Young, owner of Young Wealth Management in Davis, and Michelle Goff, an estate planning attorney with Goff, Conway-Spatola Law Group in Sacramento.

To see more free advice on personal finances, taxes, wills/trusts and investing, go to: www.sacbee.com/ask.

What is your opinion on irrevocable trusts to protect one's assets from the cost of long-term assisted living?

Kevin Young: First I must stress that I'm not an attorney and would recommend that you consult an expert in this area.

The objective of this type of trust is to remove assets from one's estate so that the individual is eligible for Medicaid (called Medi-Cal in California) without having to spend down assets to qualify. An irrevocable trust of this type would be drafted so that the trust's income is payable to the grantor (person creating and funding the trust). The grantor cannot have access to the principal once the trust is funded, but only the trust's income. When the grantor dies, the principal is paid out to the trust's beneficiaries.

Among the disadvantages of this type of trust is that, once the trust is established, there is no turning back. The creator of the trust may end up in a poor-quality skilled nursing facility because he or she lacks the funds to afford a bed in a facility that provides outstanding care, while their beneficiaries enjoy the use of the assets that were sheltered.

Also, you need to understand the five-year "look back" rule. If you fund the irrevocable trust, you will not be eligible for Medicaid (coverage) for five years. There is also the possibility of Medicaid laws changing retroactively.

On a personal note, I don't think that our taxpayer-funded Medicaid program is sustainable if more and more individuals are allowed to shelter assets. Medicaid should be reserved for the truly needy. Remember, our government is broke.

Michelle Goff: Medicaid is needs-based insurance for those with no ability to pay for their own care. In my time practicing law, I have had only a handful of clients ask for Medi-Cal planning, which is the process of impoverishing oneself to qualify for Medicaid. I refer these clients to various attorneys who specialize in this area. The rules are quite complex and if you desire to do this type of trust, make sure you see an attorney who specializes in this area of estate planning.

One item to note is that Medicare (which is an entitlement program for those who receive Social Security) pays for up to 100 days of skilled nursing per illness. So, the majority of individuals don't end up needing more than that amount of coverage.

– Compiled by Claudia Buck

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