Gifting to Avoid Nursing Home Costs- Too Many Planning Intentional Impoverishment

Health care costs continue to be a top retirement concern, yet few Americans know about their options or the potential dangers of improper planning. More importantly, the most common "simple" plans compromise, unnecessarily, important goals and objectives due to misconceptions. 

Gifting Assets May Risk Home Health Care 

For example, according to a recent survey of financial advisers by Nationwide Financial, 42% of financial advisers say their clients are currently considering giving away their assets to their children so they can qualify for Medicaid to avoid paying for a nursing home.  There are obviously some circumstances making such gifting appropriate.  But, many Americans do not understand the adverse consequences of relying on Medicaid to pay for their long-term care costs.  

Perhaps the most important of these is that the senior abandons control over their long term care and short term health care planning.  Such a result flies in the face of one of the most important objectives most senior's claim to have, and that is to maintain control of their care.  In fact, according to the  Nationwide Financial survey, maintaining control is the most important aspect of retirement health care planning to most seniors.

Many seniors also underestimate the risks of gifting.  Knowing their children to be responsible and loving, they assume the assets will remain as a safety net for their later needs.  But, what if a child is unfortunate, and suffers economic catastrophe through no fault of their own?  Gifting subjects assets to numerous other risks, such as the claims of creditors of children, loss through divorce or disability, and additional long-term care risks.  Moreover, most seniors have no idea what happens if their children predecease them.  Simply, gifting means, for all intents and purposes, that the senior may never see those assets again, regardless of need. 

Asset Protection Planning- "Keep it Secret; Keep it Safe."

A stark warning to those engaged in asset protection planning comes from Jay Adkisson,  a Partner in the Newport Beach, California, law firm of Riser Adkisson LLP, who practices in the areas of creditor-debtor law, in an excellent article for Forbes Magazine, entitled, "Kilker - Asset Protection Intent In Making Transfers To Protect Against Future Creditors Means Disaster When Creditor Appears." Simply, as the wizard Gandalf instructed the Hobbit Frodo, in Lord of the Rings: "Keep it secret; keep it safe."  Identifying asset protection planning as a purpose of your estate plan is, perhaps, the first step to losing the protection.  

Attorney Adkisson writes:  

"Taking this opinion at face value, the lesson here is simple and commonsensical but is one that is often ignored by planners: Asset protection planning should rarely be undertaken in its own name or for that stated purpose.

If the Engineer here had not admitted that he put this structure in place for asset protection purposes, and to defeat the rights of future claimants who might sue him over soil studies gone bad, then the result might have been very different on this point.

There is rarely a need to announce to the world that something was done for asset protection purposes, to call something an “asset protection trust”, to send an “asset protection” engagement letter, or any of the like. Yet, bad planners and do-it-yourselfers do it every day.

To the contrary, asset protection planning should almost exclusively be undertaken for some other purpose than creditor planning.  Do it for estate or succession planning reasons, do it for general business or financial planning reasons, do it for health reasons, do it because you’re trying to look out for an heir, but don’t state that you’re doing it for creditor reasons. (emphasis added).

There is great risk in boldly and publicly identifying an estate, business or financial plan as an asset protection plan.  Yet the market is replete with estate plans employing documents entitled "Asset Protection Trusts," or which have other, often imposing, titles such as fortress Trusts," or "The Castle Plan."  Perhaps my personal favorite is the "Complete Asset Protection Plan," which I reviewed for a client that had transferred only the personal home and a single bank account to the dubious plan, thereby rendering the supposed benefits of the plan far less than "complete." 

Proper asset protection is not easily accomplished, and it is easily lost.  If you want to incorporate asset protection planning in your estate, business, or financial plan, you are best advised to seek, and maintain a relationship with an attorney.  From conception to development, and through implementation of the plan, care must taken to ensure that the plan is as carefully protected as are the assets.  Finally, proper use of the plan as a shield requires counsel regarding presentation of the plan.

"Keep it secret; keep it safe."  It sounds simple, but it isn't.  If your assets are important enough for you to want a plan to protect them from risk of loss, they are important enough to ensure that the plan is properly drafted and implemented.