Revocable or Irrevocable trust?

[pb4uski]

That is where the irrevocable trust comes in. You give all but 5 years expenses to the ir- trust. When the 5 years are up the person is out of $ and the ir-trust funding is beyond the 5 year look back. So the person has little to no assets and the ir-trust is well funded. The ir-trust has beneficiaries that do not include the grantor.

Seems to me like a poor trade.

The irrevocable trust only wins if the OP's 90 yo mother needs more than 5 years of nursing home care and then the benefit is the cost of any nursing home care after 5 years being "free".... but only if the value of the :free" nursing home care exceeds the loss of the tax benefit of stepped up basis which is 100% likely (unless Congress makes some change).

I'd go with the revocable trust since the stepped up basis is much more likely than the OP's mom needing more than 5 years of nursing home care.

 

[bingybear]

Theoretically, if the IR Trust is set up many years before needs, then any amount can be placed in it vs. having 5 years expenses outside the trust.

i.e. yes most nursing homes would rather see some monies coming in before any Medicaid takeover, but not sure it needs to be 5 years expenses, just because the lookback period is 5 years.

The 5 years expenses are not put in the trust, but left outside the trust to provide funding for the nursing home during the look back period. You are right that if the revocable trust is set up many years before, then less is needed outside.

I don't think the grantor can also be the beneficiary of the IR-trust. Once it is funded the grantor likely can't use or control it.

 

[Dtail]

The 5 years expenses are not put in the trust, but left outside the trust to provide funding for the nursing home during the look back period. You are right that if the revocable trust is set up many years before, then less is needed outside.

I don't think the grantor can also be the beneficiary of the IR-trust. Once it is funded the grantor likely can't use or control it.

Bolded by me - correct

 

[Ronstar]

Seems to me like a poor trade.

The irrevocable trust only wins if the OP's 90 yo mother needs more than 5 years of nursing home care and then the benefit is the cost of any nursing home care after 5 years being "free".... but only if the value of the :free" nursing home care exceeds the loss of the tax benefit of stepped up basis which is 100% likely (unless Congress makes some change).

I'd go with the revocable trust since the stepped up basis is much more likely than the OP's mom needing more than 5 years of nursing home care.

That's the way I see it. FA offered another thought (although I don't know what qualified him in this regard) - He said that people in their early 90's living at home rarely end up spending 5 years in a nursing home.

I've batted around some rough numbers in my head. Given that the irrevocable trust scenario initially sets aside 5 years worth of $ outside of the trust to handle nursing home care. That $ outside of the trust would most likely exceed 5 years of nursing home care by the time that MIL would need to move to the nursing home - say 2 years? She only spends her ss.

Assuming 20% tax on the difference between the ir trust basis and the step-up basis of the revocable trust, I would think that the value of the tax savings of the revocable trust is equal to at least 1 year of nursing home costs.

So my rough calculations tell me that she would have to spend at least 6 years (age 92-98) in a nursing home before it makes financial sense to go with the irrevocable trust.

Couple that with the hoops we would have to jump through to qualify for medicaid in the ir trust scenario. Couple that with the possible problem of having to move her to a medicaid facility in the ir trust scenario.

Unless I'm missing something, I'm inclined to stay with the revocable trust.

Thanks everyone for the great insight!

 

[RobbieB]

I agree.

 

[MarieIG]

I would leave the money available for MIL to blow that dough on the nicest assisted living facility around.

After all, that's the point of having $ for old age. If there is any left that can go to the kids.

As far as nursing homes go, people don't realize how very much they don't want to be in a bad one, until they or their loved one is stuck in one.

 

[CardsFan]

I would leave the money available for MIL to blow that dough on the nicest assisted living facility around.

After all, that's the point of having $ for old age. If there is any left that can go to the kids.

As far as nursing homes go, people don't realize how very much they don't want to be in a bad one, until they or their loved one is stuck in one.

+1

 

[socca]

I tend to agree with the FA. He was quite convincing in describing why an irrevocable trust isn't necessary.

I wish that my relatives had consulted a FA before following the advice of an attorney and creating two irrevocable trusts with me as a co-trustee and manager (100%) of the trusts. I am in the process of terminating these trusts because the amount of income they generate doesn't come close to compensating for the administrative hassle of operating them (something that the lawyer "forgot" to mention back when the formation of these trusts was being discussed).

An irrevocable trust receives its own federal tax ID and needs to file federal and state tax returns. In this respect, such a trust is like a small business. Do you want to spend your "golden years" putting up with the administrative hassles?

Disclaimer: I am only familiar with "Electing Small Business" irrevocable trusts - YMMV.

Edited to add: the lawyer charged my relatives $4k for each trust. Most likely highly profitable for the lawyer, if not for me.

 

[Texas Proud]

Seems to me like a poor trade.

The irrevocable trust only wins if the OP's 90 yo mother needs more than 5 years of nursing home care and then the benefit is the cost of any nursing home care after 5 years being "free".... but only if the value of the :free" nursing home care exceeds the loss of the tax benefit of stepped up basis which is 100% likely (unless Congress makes some change).

I'd go with the revocable trust since the stepped up basis is much more likely than the OP's mom needing more than 5 years of nursing home care.

Not only that, buy you are paying higher taxes on the income inside the trust... it is very steep quickly..

 

[Dtail]

Not only that, buy you are paying higher taxes on the income inside the trust... it is very steep quickly..

Yes, but that is why the income generated in a IR Trust is typically sent outside the trust through a K-1, so it can be taxed at regular rates.

 

[cathy63]

That's the way I see it. FA offered another thought (although I don't know what qualified him in this regard) - He said that people in their early 90's living at home rarely end up spending 5 years in a nursing home.

The average life expectancy of a 90 yr old female is 4.85 yrs. It seems likely that the life expectancy for those who are fragile enough to need nursing home care is significantly less than the average, so I agree with the FA that it should be a rare event for a 90+ yr old to enter a nursing home and then live 5 more years.

Also, there are other options for end-of-life care besides nursing homes, for example in-home hospice, part-time and full-time caregivers, etc. If she's not showing signs of dementia and you plan to have her live with you, think about what conditions would likely cause her to move into a nursing home and what the progression for someone her age would be once that happened.

My MIL sounds like yours. She is 91, active and healthy, and has a revocable living trust. We expect to use her own assets to pay for whatever care she needs going forward. The children will inherit whatever is left, but the priority will be to get the right care for her if and when it's needed. We went through this with FIL three years ago, and he had a combination of care givers and home hospice for the last 9 months of his life (he died shortly before his 93rd birthday). Prior to developing an inoperable heart condition at 92, he was self-sufficient and got out and about on his own. The heart condition affected his memory due to the brain not getting enough oxygen, but he never really had dementia and he was clear he didn't want to be in a hospital or nursing home, so home hospice was the right choice for him.

 

[Ronstar]

Not only that, buy you are paying higher taxes on the income inside the trust... it is very steep quickly..

I'm beginning to see that and I don't need any more taxes. And Socca's post about the hassle of administrating ir trusts - I don't want any part of that either.

 

[mexexpat]

On Medicaid:

Not all NH's accept it and the better ones that do accept it, almost always limit the number of Medicaid beds to just a very few.

Had two friends whose mothers were on Medicaid and in two different decent-enough NH's. They were each hospitalized and when they were ready to return to NH, their former NH's told them, sorry, no Medicaid beds available.

Mad scramble by families to find Medicaid beds elsewhere and what they found was not pretty. And not as close-by for family visits.

 

[MichaelB]

I would leave the money available for MIL to blow that dough on the nicest assisted living facility around.

After all, that's the point of having $ for old age. If there is any left that can go to the kids.

As far as nursing homes go, people don't realize how very much they don't want to be in a bad one, until they or their loved one is stuck in one.

+2

One wonders if the person making the choice is really aware of the trade off.

 

[Ronstar]

DW plans to take care of her mom until she can no longer provide the care that her mom needs. We only live 7 miles from MIL. So now it is fairly easy. Just call her daily and drive to her place every couple of days to check in on her. Take her on errands and to dr. Make sure that she's eating healthy (where she frequently runs astray). She is just starting to be forgetful.

MIL already has her 'favorite' nursing home picked out, Less than a mile from her place. Her sister is there. She knows other people there, and she knows the lady that runs the place. So the plan is for MIL to go there if she has to. I've been there a couple of times and it seems nice.

Our first visit to the eldercare attorney was to review MIL's POA and living trust. The attorney suggested updating the POA and suggested an irrevocable trust. We've reviewed the attorney's advice and asked for and received a lot of help in navigating this process.

There was never a question as to where to go to get care. We all want her to get the best care. We are only searching for the best process by which to do it. Whatever the kids get is secondary as far as I'm concerned. I don't need the money.

 

[RetireBy90]

Went through managing mothers finances her last few years when she had to move to assisted living. This was not a nursing home but she got progressively more care as time went along.



Her main financial concern was not being a burden on family. Her pension and SS paid for her facility till the last year or so when she had to dip into asset returns a bit.



Once she moved into assisted care we sold her house, so all assets were with Wells and Fido. She had beneficiary instructions with both, and once she passed it was simple matter of providing a death certificate and they sent the assets to the heirs. My sister wanted her to have a trust, so she took her to a lawyer to set up a trust for $3,500 and it was never funded nor needed. All assets passed at stepped up basis. After this experience and with Dad's estate (they were divorced at this point) I see no need for trust unless 1) you have real assets that need to be sold like a house; or 2) Want to control after the end how assets are distributed or used, like for GK college only if certain GPA and class load.



Just my $0.02

 

[mexexpat]

Once she moved into assisted care we sold her house, so all assets were with Wells and Fido. She had beneficiary instructions with both, and once she passed it was simple matter of providing a death certificate and they sent the assets to the heirs. My sister wanted her to have a trust, so she took her to a lawyer to set up a trust for $3,500 and it was never funded nor needed. All assets passed at stepped up basis. After this experience and with Dad's estate (they were divorced at this point) I see no need for trust unless 1) you have real assets that need to be sold like a house; or 2) Want to control after the end how assets are distributed or used, like for GK college only if certain GPA and class load.

Just my $0.02

I agree that with the popularity of POD's with banks and TOD's for investment accounts, trusts are not necessary for most. Many states now allow TOD's on houses/property (or Lady Bird Deeds). List is here:https://www.deedclaim.com/transfer-on-death-deed/

 

[spncity]

On Medicaid:

Not all NH's accept it and the better ones that do accept it, almost always limit the number of Medicaid beds to just a very few.

Had two friends whose mothers were on Medicaid and in two different decent-enough NH's. They were each hospitalized and when they were ready to return to NH, their former NH's told them, sorry, no Medicaid beds available.

Mad scramble by families to find Medicaid beds elsewhere and what they found was not pretty. And not as close-by for family visits.

If you study up on this, even if the NH doesn’t have a Medicaid bed at the end of your loved one’s hospital stay, most states require that they take the previously housed Medicaid person back at the “first available opportunity” into a comparable bed. So, yes, you may have to go to a different nursing home for a few days or weeks. But stay on them and they will have to take your loved one back. Speaking to the ombudsman assigned to the nursing home might help.

 

[spncity]

Went through managing mothers finances her last few years when she had to move to assisted living. This was not a nursing home but she got progressively more care as time went along.



Her main financial concern was not being a burden on family. Her pension and SS paid for her facility till the last year or so when she had to dip into asset returns a bit.



Once she moved into assisted care we sold her house, so all assets were with Wells and Fido. She had beneficiary instructions with both, and once she passed it was simple matter of providing a death certificate and they sent the assets to the heirs. My sister wanted her to have a trust, so she took her to a lawyer to set up a trust for $3,500 and it was never funded nor needed. All assets passed at stepped up basis. After this experience and with Dad's estate (they were divorced at this point) I see no need for trust unless 1) you have real assets that need to be sold like a house; or 2) Want to control after the end how assets are distributed or used, like for GK college only if certain GPA and class load.



Just my $0.02

Another reason for an irrevocable trust can be if the person starts to get some sort of dementia leading to out-of-character spending, participation foreign sweepstakes (which are illegal in the U.S.) or being scammed out of money by crooks. Once in a while the crooks look like marriage suitors.

 

[mexexpat]

If you study up on this, even if the NH doesn’t have a Medicaid bed at the end of your loved one’s hospital stay, most states require that they take the Medicaid person back at the “first available opportunity” into a comparable bed. So, yes, you may have to go to a different nursing home for a few days or weeks. But stay on them and they will have to take your loved one back.

Yes in one case the person got back in the original NH in about a month, but the hassle factor and stress on both the patient and family was very high. Routines are not the same at each NH and for the elderly, any changes can be upsetting. Moving a NH patient involves a lot of meetings or calls about specific care needs and in this case the nearest available Medicaid bed was 20+ miles away, which in Metro-DC meant an extra hour's drive for family visits.

In the other case their mother passed away a few weeks after the move to the 2nd Medicaid NH.

 

[gwraigty]

I agree that with the popularity of POD's with banks and TOD's for investment accounts, trusts are not necessary for most. Many states now allow TOD's on houses/property (or Lady Bird Deeds). List is here:https://www.deedclaim.com/transfer-on-death-deed/

Ohio allows TOD affidavits that accomplish the same thing, though Ohio is not on the list.

 

[ivinsfan]

Yes in one case the person got back in the original NH in about a month, but the hassle factor and stress on both the patient and family was very high. Routines are not the same at each NH and for the elderly, any changes can be upsetting. Moving a NH patient involves a lot of meetings or calls about specific care needs and in this case the nearest available Medicaid bed was 20+ miles away, which in Metro-DC meant an extra hour's drive for family visits.

In the other case their mother passed away a few weeks after the move to the 2nd Medicaid NH.

This times 10... for my MIL that had severe dementia, any break in routine just sent her further downhill permanently.

 

[Dtail]

Yes in one case the person got back in the original NH in about a month, but the hassle factor and stress on both the patient and family was very high. Routines are not the same at each NH and for the elderly, any changes can be upsetting. Moving a NH patient involves a lot of meetings or calls about specific care needs and in this case the nearest available Medicaid bed was 20+ miles away, which in Metro-DC meant an extra hour's drive for family visits.

In the other case their mother passed away a few weeks after the move to the 2nd Medicaid NH.

Still an irrevocable trust combined with having some monies for the initial few years of paying could work in many cases.