05 Feb 0
People often wonder about the importance of utilizing an Irrevocable Trust in Medicaid Planning. Undoubtedly, the gifting of assets can be done outright. So, why confuse things with a trust? The answer is that the gift transaction costs are only a portion of what needs to be considered. Many significant advantages that can result from gifting in trust are forfeited by the outright gifting. These advantages show the importance in utilizing Irrevocable Trusts in Medicaid and asset protection planning.
The Importance Of Gifting In A Trust
Careful Medicaid planning is important if you want to avail the advantages of the following benefits. As an Elder Law Planning Attorney in Wisconsin, I’m always available to discuss the following concerns:
- Asset Protection For Beneficiary’s
A major benefit of gifting in trust is to safeguard the gifted assets from divorce, creditors, garnishment, foreclosure, etc. of the beneficiary. This is achieved by a special provision added to the trust that may make the trust assets untouchable by the creditors and divorcing spouse of the beneficiary.
- Preservation Of Step-Up Basis/Capital Gains Tax Avoidance
When an appreciated asset is involved in decedent’s taxable estate for the purpose of federal estate tax, it obtains step-up of basis on the death of the trustmaker. For highly appreciated assets, like trustmaker’s stocks or home, receiving step-up in basis can simply be forfeited by outright gifting to the beneficiary. This would force the beneficiary to pay tax on ALL appreciation since the asset was acquired by the trustmaker. Though, a provision in an Irrevocable Trust that tweaks the property back into the trustmaker’s taxable estate on the death of trustmaker, it can preserve step-up bases for the advantage of beneficiary. This can allow the beneficiary to AVOID all capital gains tax on all appreciation that occurred during trustmaker’s lifetime. This can save the beneficiary tens or hundreds of thousands in taxes! Step-up basis and estate inclusion is a great advantage to be implemented into the trust for most clients.
- A Beneficiary On State Or Federal Assistance
It is true that an outright bequest or gift from a trustmaker, like a parent, to a disabled beneficiary can result in the beneficiary becoming disqualified for the means-based government benefits that he/she was entitled to before the bequest or gift. The bequest or gift can be transferred to a special needs trust when the trustmaker passes for the benefit of the intended beneficiary. This may allow the beneficiary to remain on State and/or Federal assistance.
The discussion sums up that the usage of an Irrevocable Trust in Medicaid planning offers a chance to generate multiple advantages besides just transferring of assets. Many advantages can only be accomplished through the use of an Irrevocable Trust.
Being an Elder Law and Estate Planning Attorney in Wisconsin, I can assist you with determining whether an Irrevocable Trust is appropriate for you.