Q: My husband and I are in reasonably good health and although we are in our 60s, we have had conversations about the day when we may need to move to a nursing home facility. How can we preserve most of our assets for our children?
A: There are several things you can do before one or both of you need nursing home care. Before we begin, make a comprehensive list of all your assets, including their current value, the name of the company and/or adviser, location of the asset, legal description of any real estate, minerals, wind or water rights, how ownership is titled, and current beneficiary information. This list should include any assets that are non-income producing such as inherited mineral interests, business interests, insurance policies, etc. You will need to share this information with an experienced long-term care planning attorney for their recommendations.
Below is a list of options you may want to consider:
1. Meet with your long-term care planning attorney and accountant to discuss if your financial situation will allow you to begin transferring assets to your children now, either in part or in whole. Ideally, you would transfer as many assets to your children as possible at least five years before your admission to a full time nursing facility, as you will be penalized for any gifting done in the five years preceding an admission, which increases your overall out-of-pocket expense. Be aware that just because you gifted assets to your children with the expectation that they help with any financial problems you may encounter in your later years, they are under no legal obligation to comply. Gifting can be done to your children outright or in a trust. A trust is more costly, but gifting outright to your children means your newly-gifted assets are subject to your children’s possible divorce settlement, lawsuit or bankruptcy.
2. Continue to age at home and attempt to avoid nursing home care altogether. If you have not already developed a healthy routine of diet and exercise, begin immediately. Consult with your physician to see what suggestions they have to improve your odds of remaining independent at home.
3. When you need assistance, move in with one of your children. This may not be a popular option for either you or your child, but if you wish to preserve as many assets as possible from nursing home expenses, this strategy can be an answer. You may need to provide some fair compensation to your care-giving child, as they are taking on the additional responsibility of caring for you and will incur additional expenses and loss of personal freedom as a result. Consult with your long-term care planning attorney to structure compensation to the care-giving child so that it won’t be considered a gift and factored against you when computing your nursing home costs if that becomes necessary at a later date.
4. Depending on your age and your ability to pay, you may be able to purchase long-term care insurance. Long-term care insurance is expensive and may not pay the full amount of your nursing home care, but it can cover a large portion of the expense. Be sure to thoroughly research the insurance agent and company before purchasing any policy. Additionally, be sure to inquire about the policy’s inflation protection and waiting period you must incur prior to payment being issued to the nursing home. We advise getting 2-3 quotes for long-term care insurance to avoid an inferior product.
5. If you have a disabled child, you may want to consider making donations to fund a special needs trust on their behalf. These donations are not considered a gift when the nursing home calculates your expected expense. Donations to a special needs trust are irrevocable and cannot be used for the benefit of anyone other than the disabled individual for whom the trust was established until such time as the disabled individual is deceased.
If you and your family have questions about long-term care planning and asset protection, please contact Davis & McCann, P. A., Dodge City, KS. We are members of Wealth Counsel, a national consortium of Estate Planning Attorneys and the National Academy of Elder Law Attorneys (NAELA). We focus our practice on providing clients with the best legal advice on estate planning, Medicaid and Long-term Care Planning, Family Business/Small Business Succession Planning, Probate, Trust Administration, Real Estate Transactions, 1031 Exchanges, and related matters.
You may have heard of a Special Needs Trust, but do you fully understand what it is or how it can be beneficial? Over the years, we’ve had the privilege of working with multiple families of special needs individuals to establish this type of trust. Let’s cover a few of the most common questions we are asked:
1. What is a Special Needs Trust? A Special Needs Trust is a legal tool established specifically to benefit someone with physical and/or mental disabilities. These trusts are used to provide financial support for the individual with the disability.
2. What are the benefits of a Special Needs Trust? By using a Special Needs Trust for a disabled individual, a family member or friend can establish a fund that will be used to provide comfort care items to a disabled person, without jeopardizing that individual’s eligibility for government assistance. Without a Special Needs Trust, substantial financial gifts made to a disabled person, even those provided for in a trust established for their benefit, could disqualify them from receiving government benefits for which they would otherwise be eligible.
3. Can the beneficiary (the disabled individual) access the funds in the Special Needs Trust? No, a Trustee is appointed when the trust is established who is solely responsible for buying services and products for the individual, like vacations, home furniture and supplies, medical and dental expenses, educational expenses, vehicles, personal care attendants, etc. If the disabled individual were to have direct access to the funds in the Special Needs Trust, he/she could be disqualified from government benefits.
4. Who can set up a Special Needs Trust? Anyone may establish a “third party” Special Needs Trust for the benefit of a physically and/or mentally disabled person. You need not be a relative of the individual. A “first party” Special Needs Trust or a “payback trust” is established by a disabled individual or a conservator on their behalf and holds assets that belong to the disabled person, who must have special needs and be
Q: My wife and I have farmed our entire married lives and we are nearing retirement. Several years ago, we formed a Kansas Limited Liability Company (LLC) for our farming operation and now we would like to begin to gift LLC membership units to our three adult children. One of our sons is the LLC manager but the other two children are not involved in the farming operation. I’d like the children to receive only distributions of income from the LLC at this point, not voting rights. What is the best way to make this happen?
A: You and your wife can each gift up to $15,000 per child, per year, without federal or state gift tax consequences. Therefore, you can gift each child a combined total gift of up to $30,000 worth of LLC units each year. Unless your existing Operating Agreement established a value for each LLC unit or a method of valuation, we would recommend that you contact a certified appraiser to establish the current value of your LLC. Based on information from your appraisal, you will be able to determine how many units you can gift to each child and still avoid federal and state gift tax consequences.
Before you proceed to gift any LLC units, you should have your Operating Agreement thoroughly reviewed by an attorney experienced in corporate law to determine whether your existing Operating Agreement
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