When you or a family member has a health event that leads to needing full-time home health care or a nursing home, the financial situation you're presented with can become incredibly stressful. 

The average cost of a nursing home stay typically ranges between $6,000 and $15,000 per month. Without the proper asset protection, you could end up having to tap into your estate early and spend everything you have in your name before you even qualify for Medicaid or other types of benefits.

This may include the inheritance you were saving for your children or even your family's home.  

This is where advanced estate planning comes into play. In this article, we're going to cover your options for asset protection so that you and your family's estate remains safe if there's a health crisis.

Read on to learn more.

What Are My Options for Asset Protection?

When it comes to planning for the future in terms of your assets and legacy, an Alabama estate planning lawyer or a contract attorney may impress upon you the importance of writing a trust into your last will and testament, if appropriate. 

In a nutshell, trusts are defined as fiduciary agreements between yourself and a third party of your choosing. The trustee has the responsibility to manage said assets and property on behalf of one or more beneficiaries. Once the trust has been signed, sealed, and delivered, the assets transferred to the trust will be retitled to a trust account. Once this happens, the assets are no longer your property and become part of the trust estate.

They also may not count against you in terms of your qualifications for certain benefits—granted, you choose the right type of estate planning instruments.

Now, let's talk about your options regarding the different trusts you can use to protect your assets. This will be important if you fall ill or become mentally incapacitated and need hired care around the clock:

An Irrevocable Living Trust

Irrevocable trusts are popular in estate planning. Once you create an irrevocable trust and transfer your assets into the account, you're no longer an owner of said assets and property. Nor do you have any rights to those assets or real estate.

Additionally, irrevocable trusts cannot be amended, modified, or terminated. The assets listed in these documents became the trustee's property and held for eventual transfer to your named beneficiary. This is advantageous in some cases if properly executed because Medicaid may not count these assets against you, as mentioned above.

Of course, the disadvantage is that you won't take any of those assets back If you change your mind. So, before choosing to allocate certain assets into an irrevocable trust, you must consider your options, as well as which assets you can live without in the future.

It's also important to note that revocable living trusts cannot keep your assets safe from Medicaid if there's a health situation. This is because, with a revocable trust, you remain in control of your assets and what happens to them. Unless, of course, your beneficiary reaches their designated milestone. 

When this happens, the beneficiary's inheritance legally becomes theirs, subject to other restrictions and potential clawback actions.

A Charitable Remainder Trust

A charitable remainder trust is another type of irrevocable trust that's also tax-exempt in some circumstances. With a charitable trust, you transfer your assets into the trust account and choose to name yourself as the beneficiary. This transfer creates an income source that can be used to pay for long-term care expenses.

When you set up a charitable trust, you can also specify the number of years you want the trust to pay out for.

If the terms are life-long, then once you've passed away, any remaining assets that you have in your trust will go directly to the charity of your choice.

You may also opt for a charitable lead trust, which designates and distributes a portion of the proceeds to charity first. The charity is typically equal to the payments you would receive once the trust is put into action. Then, much like the charitable remainder trust, once you've passed away, whatever is left will go to charity—or any named beneficiaries.

Long-Term Care Insurance

While it's not the same as a trust, long-term care insurance policies are ideal to have in place as a part of your plan. 

However, they're usually the least popular option because they can be tricky to obtain and even afford for most people. 

For example, you'll be hard-pressed to get approved for a policy once you reach or surpass the age of 70. 

Additionally, suppose you have an issue with your health history or prevalent health issues in your family's medical history. In that case, you'll likely be denied a long-term policy.

Lastly, many long-term care insurance policies cost at least $4,000 and $6,000 per year on average. This is because it is statistically more common for individuals over 65 to experience health issues and require long-term care. But, of course, this also means that the payout for a long-term care policy will likely be high, which insurance companies don't like.

Therefore, these policies have become more of a luxury item rather than a helpful solution that can be leveraged to protect your family assets. 

A Medicaid Asset Protection Trust

Medicaid Asset Protection Trusts (MAPTs) can be considered an extension of your Medicaid care planning. They're a Medicaid-approved trust in which a Medicaid applicant's assets may be protected from being counted against their eligibility to receive the care.

In other words, MAPTs enable individuals who would otherwise be ineligible for Medicaid due to the value of their total assets to become eligible.

The type of assets that would go into a Medicaid trust include non-retirement assets. Examples include homes, investment accounts, stocks, permanent life insurance policies, and non-qualified annuities. Other assets can also include property other than a traditional IRA or another pre-tax retirement account. 

One of the most important criteria for setting up a MAPT and applying for Medicaid long-term care is the look-back period. 

The look-back period provides a specific window—of five years for most states, including Alabama—during which Medicaid reviews an individual's financial transactions. The review starts from the date that their application is sent in. It's meant to ensure that the individual's money or assets haven't "changed hands" for less than the fair market value (FMV) during the relevant period.

For example, Let's say you were to write a check to one of your children for $15,000 and apply for Medicaid long-term care within the designated time frame. Unfortunately, Medicaid may likely delay your coverage because that money could have been used to cover your care costs. Instead, the agency may think money is "hidden" in the form of a gift to a family member.

The point of setting up a Medicaid trust is so that your money or assets won't count against your eligibility for Medicaid. But, of course, those assets would have to have been transferred by you for at least five years—which is the typical window for the look-back period.

Contact an Alabama Estate Planning Attorney for Asset Planning

Asset protection planning can be tricky to navigate, especially if you have a family that depends on you. However, you must begin your estate planning as early as possible to avoid significant losses if you experience an adverse health situation. 

Contact us today to speak with Sarah S. Shepard or another experienced Alabama trust and estates lawyer. A Huntsville attorney can help advise you on what's best for your family regarding estate planning and trusts created for the future.