Why Would I Ever Move Assets Into A Trust If I’m Healthy Now?

Why Would I Ever Move Assets Into A Trust If I’m Healthy Now?

Why Would I Ever Move Assets Into A Trust If I'm Healthy Now?This is a legitimate question we’ve been asked.

There are three main reasons:

  1. Qualify for VA Pension (Aid and Attendance) benefits down the road and/or Alabama Medicaid benefits down the road;
  2. To preserve the family assets from being consumed by nursing home care; and
  3. To preserve the family assets in a secure and proper trust that protects from creditors, divorce, lawsuits, etc.

Let’s look at each one of these.

First, to qualify for VA Pension or Alabama Medicaid benefits in the future.

The VA Pension (or Aid and Attendance) is a benefit that you must qualify for in three ways:

  • Military service of 90 days active duty, 1 day of which is during a war time period, with a “better than dishonorable” discharge;
  • Must be 65 or older or be otherwise disabled; and
  • Have limited assets and income.

We’ll focus on the assets.

As a general rule, excluding your house and car, you should have $40,000 or under in assets.

If you have more, then you normally will not qualify for this benefit which can pay almost $25,000 a year in tax free benefits to you.

Perhaps you don’t qualify now, but you want to lay the groundwork to qualify in the future.

Then go ahead and move the assets into the right kind of trust so that the assets are no longer under your control.

As of now, 2013, there is no “look back” period which means you can transfer assets today and qualify tomorrow for the VA Pension.

There are efforts to create a 3 year look back period and who knows what Congress will do but as of now, there is not any look back or penalty under the VA rules for transferring assets in order to qualify.

Alabama Medicaid is different and we’ll talk about that next.

Alabama Medicaid is powerful benefit that can cover the cost of nursing home care which can be as much as $100,000 a year, and this amount will go up every single year.  Unless you think Washington DC is going to cause health care costs to go down….

I’m not holding my breath, how about you?

But to obtain this benefit, you have to have very limited assets.

If you have significant assets now, what can you do?

Some will tell you to wait and do nothing and then when a crisis hits, then you can spend all of your money and assets and resources paying $60,000 to $100,000 a year in nursing home costs.

That seems foolish to me when there is a solution that you can take right now.

Similar to what we said in the VA section above, you can transfer assets to the proper type of trust and then Alabama Medicaid will consider that you do not own the assets anymore.

The complexity is that you must be aware that Alabama Medicaid has a “look back” provision of 5 years — 60 months — from the date that you are in a facility and otherwise qualify for Medicaid by having very limited assets.

So what do you do since you don’t have a crystal ball as to the future?

You use your best judgment as to your health and you plan, with your elder law attorney, the best way to handle a situation where you might need nursing home care before the 5 year mark has passed.

There are numerous strategies to do this and we lay these out for our clients in a “roadmap” that shows how to get to where our clients want to be from their starting point now.

So, in summary, the first reason to properly and legally move assets to the right type of trust is so when you need VA Pension and/or Alabama Medicaid, you will be in a position to receive the benefits and not have to waste all of your assets because you were not prepared.

So find out if getting prepared is the right thing for you to do.

Second, to guard the assets against the destructive effect of paying $60,000 to $100,000 a year in nursing home costs.

This is similar to what we talked about above but it is so important I want us to spend a bit more time on it.

If you decide not to get prepared, then when the crisis hits, you will be forced to pay for things with your hard earned savings and assets.

So what is a crisis?

  • You have a stroke and must go to a nursing home;
  • Your loved one falls and breaks a hip and cannot stay at home;
  • Home health is needed or sitters are needed “around the clock” to take care of your loved one; and
  • All the other things that can happen to us as humans, especially as we get into our later years.

OK, the crisis has hit.  How much is it?

Nursing homes can run $60,000 to $100,000 a year.

Assisted living facilities (which Alabama Medicaid does not pay for) can range from $30,000 to $100,000 a year.

Sitters and home health can be in the low $20,000 range all the way up to more than $100,000 a year.

So take a look at your assets — your money and resources.

Put “pen to paper” to see how long it will take to deplete your assets spending this type of money.

Now, run the calculations if you are receiving up to $25,000 a year from the VA Pension or, in the case of a nursing home, Alabama Medicaid is paying the entire amount.

“But my assets have been moved to a trust — I don’t have much money to pay for my care!”

We understand.

But normally the person in charge of the trust is a relative.

A relative that will immediately reach into their own pocket to pay for your care.

Now they have all of the extra resources and assets that were put into the trust to help them to care for you.

Without proper planning, only luck can preserve your assets if you have a crisis situation.

With proper planning, you have increased your odds of being able to receive the care you need.

All while preserving your assets you spent a lifetime creating.

You’re preserving them for your loved ones.

Finally, to have a safe and secure place to transfer the assets.

This is to protect them from those who would take them.

Some people say “OK, those first two points make sense but I should just give my assets to my kids.  That sounds easier and cheaper.”

That is true — it is easier.  You just give them away.

It is cheaper .

You are not hiring a lawyer to create the trust, counsel you on the proper type of trust, and to explain how to use the trust in the right way.

But is “cheaper” and “easier” always the same as the best?

I could go get medical care in Mexico I suppose for cheaper than at UAB or St. Vincents or Brookwood.

I’m not sure that seeing a doctor in Tijuana, Mexico is better than seeing a doctor in Birmingham. or Huntsville.

Or any one of our other fine facilities we are blessed with in Alabama.

Here are a few problems with giving away your assets even though it is “cheap” and “easy”:

  • There are tax consequences when your children sell the assets that can be very expensive and greatly exceed any expense in getting proper planning from an elder law lawyer;
  • Your children or relatives could get divorced and then their ex spouse may get half or more of the “gift” you made — so that money is not there to help you if need long term care;
  • What if you are sued or your children/relatives are sued — if the assets are simply “sitting there” then they can be taken in a judgment against you; and
  • Sometimes our family members cannot handle receiving money without it hurting them or without them “blowing” the money.

But if we use a proper trust, then here are some of the benefits:

  • Our children or family can receive favorable tax treatment by minimizing capital gains taxes when assets are sold — assets that we may have bought for very cheap 30 years ago but now have appreciated greatly in value;
  • If your children get divorced, the assets are protected in the trust from your ex daughter in law or ex son in law and even protected while your children are still married;
  • If a lawsuit is filed and a judgment is obtained, the assets in the trust (if properly set up) are protected because the trust owns the assets, not you or your family;
  • Finally, a proper trust with the right trustee can protect family members from themselves until they have the maturity to handle receiving the money from the trust after you pass away.

Here’s the bottom line.

Transferring to a trust is not always the best decision.

But when it is, nothing comes close to being as effective.

Sometimes it does not make sense to transfer assets to a trust.

However, often it does make sense to be prepared for what awaits most of us.

That deadline is a decline in health and a rise in medical costs.

Contact Us.

To find out if this is right for you, contact my office at 205-879-2447 or fill out the online form here.

We can set up a meeting to see what your unique situation is and we can help you discover the best options for you.

We welcome your call and thank you for taking the time to read this article.

Have a great day!

-John G. Watts


Here are some additional articles that you might find interesting to read.

These expand on some of the concepts mentioned in this article:


  1. cb says:

    Thank you for sharing your wisdom in this intellegent article!

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