The purpose is to protect assets and allow individuals to qualify for Medical Assistance. Medical Assistance is a Welfare Program which helps individuals pay for the high cost of nursing home care, now in Pennsylvania averaging $482.00 per day. An individual’s assets will be protected so long as the Trust is created, and assets transferred five (5) years prior to a nursing home admission and request for Medical Assistance.
During the individual’s life, they will enjoy the use of the home and income generated by the assets in the Trust. Upon the individual’s death, the named beneficiaries, usually children, receive the accumulated principle.
Lifetime Benefits
There are other wealth safeguards and control benefits to an asset protection trust besides just nursing home asset protection!
- During your lifetime you enjoy use of the home and income generated by the Trust assets.
- Until you die, the assets are protected from your children’s creditors or their divorcing spouse.
- Provided your children and trustees consent, you still may have access to the principle.
- Your divorcing spouse cannot access the principle!
- In your Trust, you can designate whether charities, all, or only a few of your children will inherit the Trust’s assets.
Tax Advantages
The Asset Protection Grantor Trust will also provide you and your family important tax advantages:
- While you are alive, income accumulating on the Trust’s assets will be taxed to you, therefore not your children’s burden.
- Most Nursing Home Asset Protections Trusts are funded with the family home. In the event the home is no longer needed by the parent, it may be sold. Any capital gains up to $500,000.00 from the sale can be excluded from federal income tax.
- Finally, the creator/parent/settlor of the Trust maintains a stepped-up basis for assets in the Trust. This means, upon the Parent’s death, the children may use the date of death value in determining their capital gain when the asset is sold. This is a MAJOR BENEFIT. In contrast, assets transferred to children during the owner’s lifetime receive a stepped down basis. The painful taxable event is when the child sells the parent’s previously owned stock or home, the gain begins at the value the parents paid and ends when the child sells. For example, the home the parents purchased in 1961 for $25,000.00 subsequently during the parents’ lifetime transferred to the children. The children now sell the home for $250,000.00. The taxable gain is an eye popping $225,000.00. With the home in an Asset Protection Trust when the parent dies, assuming it is 2022, the kids then inherit all the real estate at a current value of $250,000.00 value and then they immediately sell it for $250,000.00, the capital gain is ZERO ($0.00), and no capital gain tax is assessed, a possible income tax savings to the children of perhaps $45,000.00.
Finally, Nursing Home Asset Protection Trusts will protect the assets within from the devastating costs of long-term care, now averaging $482.00 per day in Pennsylvania. These Trusts will benefit your children upon your passing and provide them with important tax savings.