Unfortunately, seniors can be prime targets for financial abuse through frauds and scams. Sadly, seniors are often taken advantage of by strangers — and sometimes even their own family members. That’s why it’s important that estate planning is in place to help seniors protect themselves and, more importantly, their assets from current or future financial exploitation.
As we age, it can become increasingly difficult to manage our assets. Additionally, seniors can become socially and/or physically isolated and, therefore, fall prey to people who take advantage of the senior’s vulnerability to defraud him or her. Consequently, many seniors may, at some point, need assistance with managing their finances or oversight to help them not fall prey to potential scammers, defrauders, or exploiters, who might otherwise seek to deplete their estate. A Living Trust is often the best way for seniors and their loved ones to safeguard assets. Living Trusts allow seniors to rest assured that their finances and assets are managed (or co-managed) by a trusted person, who will not only handle the details of paying bills and expenses, but also can serve as a protector against individuals who are looking to take advantage of or manipulate the senior financially.
What is a Living Trust?
Living Trusts help protect and manage the assets of those who cannot partially or fully do so themselves due to age, illness, or disability (incapacity). Many seniors assume that a Last Will and Testament is the only “protection” they need. But a Last Will and Testament has no legal role to play and has no control over the management or supervision of assets while an individual is alive, even if incapacitated. A Last Will and Testament only outlines what happens with a person’s assets after death through the probate process. Living Trust, however, can be used to help manage and safeguard a person’s assets while they are living, while also including instructions on how the assets within the trust at the person’s death are to be divided or distributed without the need for probate.
To establish a Living Trust the individual creating it (known as the “trustmaker” or “grantor”), places assets within the trust. The grantor then appoints a trustee or trustees to manage it and names beneficiaries to receive the assets of the trust at the grantor’s death.
There are different types of Living Trusts that be created by a Grantor, depending upon their individual planning goals and circumstances. Different types of trusts can benefit seniors in different ways and for different purposes.
A Testamentary Trust is a trust that only comes into being or is established at the time of the senior’s death in order to provide asset protection for a designated beneficiary, such as a surviving spouse. In such a case, the assets of the deceased spouse are set aside in a trust — enabling the appointed trustee to then manage the assets for the benefit of the surviving spouse and make all financial decisions regarding how or when the assets are used. This helps a surviving spouse by protecting him or her from fraudsters, scammers, or exploiters, along with possible mismanagement of the assets by the surviving spouse, who may due to age or incapacity no longer be able to effectively manage the assets. Trustees can help the surviving spouse better manage the assets and oversee investment and income decisions, while also considering income tax benefits.
Revocable Living Trusts
A Revocable Living Trust is a trust set up in advance of the senior’s death and can safeguard seniors by making it more difficult for non-trustee family members (or other individuals) to mismanage money or assets. The senior, once again as the trustmaker or grantor, can amend or revoke the trust at his or her own discretion during his or her lifetime without the consent of any beneficiary. This type of trust allows the senior to stay in control of assets by either serving as sole trustee or a co-trustee, with another trusted individual(s). Or the senior could decide to appoint a trusted individual to serve in the role of trustee and allow this individual alone to manage the trust for the senior’s financial benefit. In creating this type of trust, the senior, if he or she would be serving initially as trustee, would include instructions which would direct the appointment of a successor trustee in the event the senior would become incapacitated or were to die. The appointed successor trustee would then be the person responsible for managing the assets within the trust, including the distribution of the assets upon the senior’s death.
Irrevocable Living Trusts / Use of an Elder Law Attorney
An Irrevocable Living Trust is also a trust set up in advance of the senior’s death, but is one that cannot be changed or revoked by the senior after it has been created. This generally means that the senior, again as the trustmaker or grantor of the trust, gives up his or her rights to the assets that have been placed in the trust. Seniors who may want to establish their eligibility for Medicaid benefits to aid in paying for long-term care costs (specifically, nursing home expense) often choose to transfer assets into an Irrevocable Living Trust to avoid having to “spenddown” a portion (potentially all) of their estate in order to achieve eligibility for Medicaid long-term care benefits. Ideally, the use or creation of an Irrevocable Living Trust will occur well in advance of the senior’s need for long-term care or nursing home admission and before he or she has already depleted his or her estate in paying for care costs.
Presuming the Irrevocable Living Trust has been properly drafted and does not allow the income or principal within the trust to be used to benefit the senior (the senior cannot be a beneficiary of the trust upon its creation), the assets held by the trust should not be counted for possible Medicaid eligibility purposes. But it is critical to note that there could be a penalty or disqualification period imposed by Medicaid on the senior for transferring (“gifting”) assets to this type of a trust, if the transfers occurred within five (5) years of the senior’s applying for Medicaid benefits (eligibility).
An elder law attorney can assist seniors in determining the best way to set up an Irrevocable Living Trust and how best to transfer assets based on the Medicaid eligibility rules within the state in which the senior resides. An Irrevocable Living Trust can provide income for seniors and their spouses, if the planning circumstances indicate that such a design is appropriate. A properly drafted Irrevocable Living Trust can also protect assets from being seized to pay for medical costs, without impacting Medicaid eligibility. These types of trusts can in addition remain in place for a surviving spouse or other beneficiaries after the senior’s death.
As noted above, the timing of the creation of an Irrevocable Living Trust is critical. The sooner assets are placed in an Irrevocable Living Trust the better, as Medicaid has a 5 year gift-look back period and can assess a “gift transfer penalty period” upon any individual (or that individual’s spouse) who gave away property or assets within 5 years of seeking to establish eligibility for Medicaid long-term care benefits.
Ultimately, Living Trusts provide seniors with more effective control and management over their assets during their lifetime and with the ability to protect themselves as they age from financial exploiters, from incapacity, and, in certain cases, from the financial devastation caused by the need to pay for long-term care costs.