Revocable or Irrevocable trust?

[Ronstar]

DW and met with an elder care attorney to discuss MIL's situation. MIL (90 yo) currently has a revocable trust. The elder care attorney is suggesting an irrevocable trust. The attorney's idea is to leave assets equal to 5 years of nursing home care expenses outside of the trust, and put the remainder in an irrevocable trust to shield the assets.

We also met MIL's FA. He doesn't think that the irrevocable trust is a good idea. He claims that heirs to funds in the revocable trust have the benefit of a step-up basis and irrevocable trusts do not. MIL's basis is only about 40% of her portfolio value. He claims that there is no need to shield assets - that the investment portfolio and ss generates enough income to fund nursing home care without dipping into the principal.

Based on what the FA said, the heirs would be subject to significant taxes on the gains from the irrevocable trust when they sold the inheritance. Not so much from the revocable trust due to step-up basis.

The FA said that in many cases elder care attorneys like irrevocable trusts because they can increase their fees by creating the additional documents.

I tend to agree with the FA. He was quite convincing in describing why an irrevocable trust isn't necessary. We haven't gone back to the elder care attorney for round 2 yet.

I know I may not have provided much to go on here, but is there something that I'm missing?

 

[Dtail]

I have an irrevocable trust for my parents, but the investments effectively have a 100% basis, so don't have that issue.

I would agree with the FA in your case, especially since there are monies to help fund the nursing home. Thus assuming the income generated is over 100k yearly.

 

[joeea]

The attorney's idea is to leave assets equal to 5 years of nursing home care expenses outside of the trust, and put the remainder in an irrevocable trust to shield the assets.

We also met MIL's FA. He claims that there is no need to shield assets - that the investment portfolio and ss generates enough income to fund nursing home care without dipping into the principal.

It appears that the FA has insight into both the portfolio and estate laws, while the attorney has insight only into the laws.

So how much income is the portfolio + SS generating? How does that compare to the cost of nursing home care in your locale?

If it's generating enough, then there is no need to shield assets and the FA is correct. Otherwise, the attorney is correct.

 

[Ronstar]

Nearby nursing home is $6k per month.

I believe that her average portfolio gain combined with ss is near $100k, based on what FA is saying.

 

[Dtail]

Nearby nursing home is $6k per month.

I believe that her average portfolio gain combined with ss is near $100k, based on what FA is saying.

Sounds like a revocable trust is the way to go then.
If one has no monies to give to the nursing home and thus is a Medicaid patient, the choices of nursing homes can be far and few between, plus one might have to be accepted at a nursing home not anywhere near their original residence depending on availability.

 

[bingybear]

You threw out two options, but without telling what you are trying to do overall.
OK, the lawyer wants to fund the spend down and move everything else to an irrevocable trust. Gains earned in the trust either will need to be distributed or be taxed at higher rates of the trust. Also doing the medicaid spend down has a side effect that your MIL could have to change places to live if the one she is at does not take medicaid or have no available medicaid beds.

The FA is figuring that your MIL can self fund. Even under the lawyer you fund the next 5 years.

I don't know your numbers which makes it hard to make a informed comment. I assume your MIL did not plan for her assets to go into a after her passing.

Assuming your MIL is well funded and did not plan on controlling from the grave thru trusts, then I would likely follow the FA.

just my thoughts.

 

[bingybear]

Sounds like a revocable trust is the way to go then.
If one has no monies to give to the nursing home and thus is a Medicaid patient, the choices of nursing homes can be far and few between, plus one might have to be accepted at a nursing home not anywhere near their original residence depending on availability.

What?!
The goal of the lawyer's irrevocable trust is to put all teh $ into the irrevocable trust except 5 years expenses to cover the spend down period. The money in the trust is for the heirs. After the spend down the MIL is a medicaid patient. That is the point of this move.

I do agree that can make finding a medicaid place.

 

[ivinsfan]

Is this the same MIL that you wanted to move to Arizona?

She isn't actually in a nursing home at this time is she, or I don't think she is.

It's good that you went to an eldercare attorney but I'm not sure I'm thrilled with the advice he offered. I thought he would talk medical and durable POA and end of life decisions and stuff like that. Based on what you say the MIL can just about fund a nursing home indefinitely without touching the principal. Did you indicate her children were interested in doing a spend down. What's in it for the eldercare attorney does he want money to switch out the trust?

 

[Dtail]

What?!
The goal of the lawyer's irrevocable trust is to put all teh $ into the irrevocable trust except 5 years expenses to cover the spend down period. The money in the trust is for the heirs. After the spend down the MIL is a medicaid patient. That is the point of this move.

I do agree that can make finding a medicaid place.

I understand the irrevocable trust concept.
What I am saying is to follow the FA advice and continue the Revocable Trust which is in place currently.

 

[pb4uski]

It sounds to me like the tax benefit to the heirs of the step up in basis [about 9% of portfolio value... (1-40%)*15%] is worth a lot more than possibly paying for some years of nursing home care from her assets.... so I would stay with the revocable trust.

 

[Ronstar]

Is this the same MIL that you wanted to move to Arizona?

She isn't actually in a nursing home at this time is she, or I don't think she is.

It's good that you went to an eldercare attorney but I'm not sure I'm thrilled with the advice he offered. I thought he would talk medical and durable POA and end of life decisions and stuff like that. Based on what you say the MIL can just about fund a nursing home indefinitely without touching the principal. Did you indicate her children were interested in doing a spend down. What's in it for the eldercare attorney does he want money to switch out the trust?

Yes - same MIL that we wanted to move with us to Az. No she isn't in a nursing home. Probably far from it. Still lives alone, drives, works out at the Y, and walks 2 miles a day.

Eldercare lawyer (she) did talk POA and the other stuff. We are having her draw up a new medical/durable POA.

One reason for the meeting was to find out if we would somehow be responsible for MIL's nursing home care down the road if MIL moves in with us in the interim. Lawyer said for MIL to sign a lease if she moves in with us. Weird. Also, she told us not to sign anything that a nursing home would want us to sign.

DW explains everything to her siblings. I think they initially liked the spend down irrevocable trust idea. Then we met the FA who explained the cons of the irrevocable trust. I explained the basis difference to DW''s siblings, but I don't think they understood. I'm going to take another stab at it.

Eldercare lawyer would charge about $5800 to change the trust.

 

[CardsFan]

What does MIL think about this?

If I were MIL, and I had the financial assets she apparently has (generating about $100k per year including social security), there is no way on earth I would want to plan on being in a Medicaid bed if/when I made it to 95 or 100. I would want the nicest place I could find, and pay for it out of pocket.

 

[Ronstar]

^ I think the local place where her sister is accepts medicaid, and MIL seems ok with it. I've been there and it doesn't seem too bad to me. MIL is more concerned about leaving $ to her kids than she is about living better herself.

Before I read replies in this thread, I didn't know that there were places that did and did not accept medicaid. I thought all places accepted it. I'm starting to get the impression that places that accept medicaid do not give as good as care. If that is the case, I won't be in favor of an irrevocable trust if it could lead down the path to lesser care in a medicaid facility.

 

[ivinsfan]

What does MIL think about this?

If I were MIL, and I had the financial assets she apparently has (generating about $100k per year including social security), there is no way on earth I would want to plan on being in a Medicaid bed if/when I made it to 95 or 100. I would want the nicest place I could find, and pay for it out of pocket.

Yes and No, the reality is if you have been in a nursing home for awhile, most likely after 5 years they would accept a Medicaid assignment. Having said the that, the nicest and best place for memory care in our town, flat out told us they would never accept Medicaid. It was a smaller type place with a great staff ratio and I guess they couldn't keep the doors open with patients on Medicare...they had a waiting list too so they weren't blowing smoke.

 

[ivinsfan]

Ronstar, the local place might be fine. IME the places where they fall off is with memory care. I can't tell you how bummed out we were to realize we couldn't place MIL at our first choice. It was smaller. quieter, had a great staff to patient ratio and low staff turnover. All the things that are important to a memory care patient. MIL outlived her assets by about 4 years so we made the right call financially. I know she would have been happier or at least less confused and stressed in the first choice.

 

[Dtail]

Yes and No, the reality is if you have been in a nursing home for awhile, most likely after 5 years they would accept a Medicaid assignment. Having said the that, the nicest and best place for memory care in our town, flat out told us they would never accept Medicaid. It was a smaller type place with a great staff ratio and I guess they couldn't keep the doors open with patients on Medicare...they had a waiting list too so they weren't blowing smoke.

Agree with your post. That is the tact we are taking with my parents. The Irrevocable Trust has half their assets and are willing to pay down the other assets. They also do have LTC policies.

 

[bingybear]

Agree with your post. That is the tact we are taking with my parents. The Irrevocable Trust has half their assets and are willing to pay down the other assets. They also do have LTC policies.

Sorry, I misread the trust type you used.

 

[CardsFan]

^ I think the local place where her sister is accepts medicaid, and MIL seems ok with it. I've been there and it doesn't seem too bad to me. MIL is more concerned about leaving $ to her kids than she is about living better herself.

Before I read replies in this thread, I didn't know that there were places that did and did not accept medicaid. I thought all places accepted it. I'm starting to get the impression that places that accept medicaid do not give as good as care. If that is the case, I won't be in favor of an irrevocable trust if it could lead down the path to lesser care in a medicaid facility.

The bolded sentence above does change things, somewhat, but it sounds like she can accomplish the goal of leaving a tidy some, without losing the flexibility, while retaining the revocable trust.

Yes and No, the reality is if you have been in a nursing home for awhile, most likely after 5 years they would accept a Medicaid assignment. Having said the that, the nicest and best place for memory care in our town, flat out told us they would never accept Medicaid. It was a smaller type place with a great staff ratio and I guess they couldn't keep the doors open with patients on Medicare...they had a waiting list too so they weren't blowing smoke.

And the bolded part above here is why I would want to maintain that flexibility.


FWIW, my MIL is 88 and in a similar, though not quite as good, financial position. My departed FIL was very clear about why he saved so much money. He had no desire to be at the mercy of a government agency in his later years. He, unfortunately, never used any of the money for this, as he died of a massive heart attack 18 years ago at 75.

I know MIL desires to leave as much of her assets as possible, evenly, to her 3 daughters. But I would not be in favor of her setting up an irrevocable trust to do so.

Just my 2 cents.

 

[gwraigty]

One reason for the meeting was to find out if we would somehow be responsible for MIL's nursing home care down the road if MIL moves in with us in the interim. Lawyer said for MIL to sign a lease if she moves in with us. Weird. Also, she told us not to sign anything that a nursing home would want us to sign.

Don't go back for a second meeting.

You shouldn't be responsible for using any of your funds to pay the nursing home bills. It doesn't matter if MIL moves in with you or not. A lease isn't necessary.

You definitely shouldn't sign anything that says you agree to pay the nursing home bills. When I arrived at the nursing home with my grandmother many years ago, they did require me to sign something. I believe it was just an informational document stating who had brought her in. Nothing that made me responsible financially, for sure. I read carefully before signing.

 

[Texas Proud]

What does MIL think about this?

If I were MIL, and I had the financial assets she apparently has (generating about $100k per year including social security), there is no way on earth I would want to plan on being in a Medicaid bed if/when I made it to 95 or 100. I would want the nicest place I could find, and pay for it out of pocket.

+1 on this...

 

[Texas Proud]

^ I think the local place where her sister is accepts medicaid, and MIL seems ok with it. I've been there and it doesn't seem too bad to me. MIL is more concerned about leaving $ to her kids than she is about living better herself.

Before I read replies in this thread, I didn't know that there were places that did and did not accept medicaid. I thought all places accepted it. I'm starting to get the impression that places that accept medicaid do not give as good as care. If that is the case, I won't be in favor of an irrevocable trust if it could lead down the path to lesser care in a medicaid facility.

There are differences... the question is how big where you live...


From what I hear from one of my sisters, there are almost none here in TX that are really good... some are ok and some are just horrible...


She has a friend who has moved her mother to between 5 and 10 places and she still does not like the service... and these are the ones where patients pay full price...


Where my mother is, they only allow patient pay or military pay, not medicare... there are a few who who were in the military who do not have funds that get help to pay the bill, and from what I have heard up to 100% is paid... but they made it clear that if we run out of money she will not be living there...

 

[DeborahB]

I’m not certain, it may be a state issue. But... you can’t get government assistance for a nursing home unless you have almost no assets. Secondly, there are issues of going through probate upon her death, on anything outside the trust, unless it is in joint ownership. I have a revocable living trust and I recommend that approach. It’s pretty straightforward.

By the way, $5800 sounds like a huge legal fee. My experience with setting up a revocable living trust, along with medical and financial powers of attorney, and a will, was more like $2K to $3K, and I inflated those expenses, at $300/hour.

 

[bingybear]

I’m not certain, it may be a state issue. But... you can’t get government assistance for a nursing home unless you have almost no assets. Secondly, there are issues of going through probate upon her death, on anything outside the trust, unless it is in joint ownership. I have a revocable living trust and I recommend that approach. It’s pretty straightforward.

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.

 

[DeborahB]

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.

Ah, thanks. That explains it better. My impression is that the nursing homes you’d qualify for are usually not good ones, though. I still would go, in this case, with the revocable trust and the FA.

 

[Dtail]

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.

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.