Wise Advance Planning––Craig Watson

Wise Advance Planning

By Craig Watson, Texoma LIVING WELL Magazine

Back in 2006, Hal and Barbara had an unsettled feeling, but they couldn’t determine why. They were in excellent health. Hal was 85 and Barbara was 73. They had a modest estate consisting of a house and approximately $100,000 in savings. They rarely made withdrawals from their savings because their monthly income was more than enough for their needs. They had a close and trusting relationship with their children. Hal and Barbara knew their children were financially secure and were not counting on an inheritance. However, Hal and Barbara really wanted to make sure their estate would eventually be received by their children.

Hal and Barbara were anxious because they knew that their estate plan did not protect their assets from being depleted if one of them had to enter a nursing home. They also wanted to make sure that if either one of them had to go to a nursing home, their assets would be protected and available for the survivor. They didn’t have long-term care insurance and they knew Medicare would not pay for custodial care in a nursing home. When they had previously asked their accountant about how to protect their assets, she referred them to a Certified Elder Law Attorney. So they decided to make an appointment.

The attorney explained all about how to finance long-term care and make changes to their estate plan. He explained that if one of them had to enter a nursing home, their savings would first be used up to pay for the required care and then the ill spouse would qualify for Medicaid, leaving the well spouse financially at risk. After considering several different alternatives proposed by their attorney, they decided to establish an irrevocable trust and put their savings in the trust.

They discussed the trust idea with their children and decided to appoint one of their sons as trustee to manage the trust. The trust would protect their savings from their future creditors and their children’s creditors, including if one of their children happened to experience a divorce.  The gift to the trust would mean that Hal and Barbara would not be able to qualify for Medicaid to pay for nursing home care for five years. If they remained in good health for over five years, their life savings would be completely protected if one of them had to enter a nursing home.

Their attorney included a provision in the trust that would allow their children to access the trust funds. The attorney explained that in the event Hal or Barbara unexpectedly had to enter a nursing home during the five year period, it would be possible to unwind the trust and qualify the ill spouse for Medicaid before the five year period was complete. An additional benefit was that their new estate plan would allow both of their estates to avoid probate. The trust would avoid probate and terminate (with the trust funds going to their children) upon the death of the survivor between Hal and Barbara. The attorney explained how they could change their house deed so that it would avoid probate. He also explained how their children could avoid probate regarding Hal and Barbara’s cars. They were pleased to learn that the legal fees saved by avoiding probate would more than pay for the cost of the trust.

Hal and Barbara experienced good health for the next seven years until early 2013 when Hal experienced a dramatic medical event and spent almost a week in the intensive care unit of a local hospital and then another couple of months in a local rehabilitation facility and nursing home. Although Hal has finally improved enough to return home, he is very weak and Barbara needs assistance with his care. While Hal was in the nursing home, the family was able to apply for Medicaid assistance because Hal and Barbara had contributed their savings to the irrevocable trust. Now their children are able to use the trust funds to pay for extra care that improves the quality of life of both Hal and Barbara. They have the peace of mind because they know that their life savings will be preserved for the rest of Barbara’s life even if Hal passes away. Further, at Barbara’s death, their life savings will benefit their children.

Craig Watson’s legal practice is focused on Estate and Tax Planning, Probate, Guardianships, Elder Law and Corporate Law. Formerly a CPA, he has 23 years of experience as an attorney.  He can be reached by calling 903-813-8500 or at craigwatsonlaw.com.