Is a trust good for you?
I’m not sure why, but recently I have had more customers ask what I thought of trusts than any other topic.
First, let me begin by saying this is a subject on which I am not an expert. I asked each customer why they were interested in setting up a trust. Each had experienced a relative or friend who was in a nursing home and their assets could no longer cover the cost, and to qualify for Medicaid they had to liquidate all their assets, including their home.
Medicaid is a joint federal and state program that gives health coverage to some people with limited income and resources. To qualify for Medicaid, an income and asset threshold must be met. The benefits can also change by the state in which you reside.
Years ago I had a customer come into my office who was doing some estate planning. Her husband had died and just before his death had inherited a large sum of money. Her attorney was advising a strategy of setting up an irrevocable trust to avoid estate taxes in the future. I asked about her concerns. She said simply, “I’m 49 years old and do not want to give up control of my assets.” I have never forgotten that meeting.
To set up an irrevocable trust to qualify for Medicaid, you must give up control of your assets. Your goal is to try to pass on those assets to your heirs. While that goal may have meaning to you, is it worth the price you must pay? Let me point out you must do this five years before going into a nursing home. Ask yourself if you are ready to give up control of your assets. Contact an attorney who specializes in elder law and get a clear understanding of how an irrevocable trust works. Ask yourself if you trust your heirs. The simple solution may be to gift those assets to your heirs now.
Recently, there was an article about how little income a person on Medicaid was able to keep while in a nursing home. This triggered my thinking about the care people receive in a nursing home when they are on Medicaid. It is estimated that between 80% and 90% of nursing homes accept Medicaid. While this percentage sounds high, the percentages are very misleading. Nursing homes may accept Medicaid, but often have a limited number of “Medicaid beds.” “Medicaid beds” are rooms, or more likely shared rooms, that are available to people whose care will be paid for by Medicaid. Nursing homes prefer residents who are “private pay,” meaning the family pays the cost out-of-pocket. This is because private pay residents pay approximately 30% more for nursing home care than Medicaid pays.
The average cost in a nursing home is $7,800 per month. That number is only going to increase as the demographics change and our population gets older. Add to that fact that medical care is keeping us alive longer. This means a couple could pay $15,600 per month in a nursing home. We could make some assumptions like the couple gets $4,000 per month in Social Security, and $4,000 per month in pension benefits, leaving a shortfall of $7,600 per month. If you’re say 75 and your wife is 71, you may need $1,500,000 in assets to cover this gap.
I am positive that I did not answer the question of whether a trust is good for you. I hope I made everyone think about what is about to happen to all of us. Each person should meet with a planner. If you have a spouse, then both of you should meet. Involve your family members in the discussion. It is not a crime to want to be cared for in your later years. You work for your assets, so you should be cared for.
I have shared with my family my plan to care for their mother and myself. Some people are lucky and will have enough assets; others will have little assets and never need this discussion, but those who fall somewhere in the middle have some thinking to do.
Start planning now: To make the plan work, you need to give it lots of time. As always consult a professional. Text 724-222-5600 with any questions.
Bob Hollick is a State Farm Insurance agent based in Washington.