What Your Financial Planner Needs To Know…

There’s a handful of financial advisors that are familiar with iPug asset protection trusts.  Now if you were to ask your financial advisor, he or she may say, “oh yeah, I know those…”, but chances are they are just covering for a lack of knowledge.  You can read more on this issue (What Your Financial Planner or Family Lawyer Doesn’t Know, Hurts You!).  Either way, most financial planners are not familiar with the planning options with irrevocable trusts, they are used to the old Irrevocable Life Insurance Trusts (ILITs) or other irrevocable trusts that were set up for estate tax purposes.

The new breed of irrevocable trust is very different than the old style, estate tax planning irrevocable trust.  My colleague David M. Goldman breaks down the issue wonderfully on his blog Florida Estate Planning Lawyer Blog. In his blog, he lists the problems with the old style irrevocable trusts:

1. Loss of control over the management of the assets;
2. A separate EIN number for tax reporting purposes;
3. A larger tax bill because of the way traditional irrevocable trusts are taxed;
4. A loss of the step-up in basis available to assets owned by an individual upon the death of the settlor; and
5. The inability to change provisions or beneficiaries in the future.

Now remember, these problems only apply to irrevocable trusts of old, not the modern irrevocable trust.  

The Modern Asset Protection Trust- The iPug

The modern irrevocable trust arose to address the concerns of clients today.  My clients are not concerned with estate taxes (unless you have over $5million or won the Powerball…), but what they are concerned about are long-term care costs and to a lesser extent law suits.

David Goldman again goes on to list out the advantages of the iPug Trust:

1. This is a grantor trust that you create and are in control of.  No beneficiary ever has a right to demand a distribution of income or principal during your life.
2. The trust provides asset protection from future liability like car accidents, professional or personal negligence, and even can be structured to provide protection from Medicaid ineligibility.
3. The trust is a disregarded entity for tax purposes and uses your social security number.  This means you are taxed just like as if you owned the assets yourself.
4. The trust does not remove assets from your estate so your beneficiaries receive a full step up in basis upon your death, just like with personally owned assets or those in a revocable trust.
5. The assets in this trust are protected from the surviving spouse’s future marriage in much the same way that a prenuptial agreement would protect the assets.
6. The assets are protected from an elective share claim in the future.
7. You can change the beneficiary at any time without risking loss of the assets to creditors.
8. The trust has special provisions to protect inherited IRAs from the claims of creditors.  (A recent Supreme Court case held that inherited IRAs are not protected from creditors)
9. All assets that can be transferred to a revocable trust can be transferred to an iPug trust without penalties or termination.
10. The iPug trust can contain trust protectors that enable changes to the documents if the laws change in the future, in much the same way as one would have with a revocable trust.  Often in joint irrevocable trust, changes cannot be made after the death of the first spouse, but even with a joint iPug trust changes can be made after the death of the first spouse.

As you see, the modern asset protection irrevocable trust is a completely different animal.  These trusts are great for avoiding probate, protecting your beneficiaries, and most importantly–protecting you.  Given these benefits, it’s a matter of time before financial planners will be more familiar with the iPug Trust and realize these aren’t your parent’s irrevocable trusts of old.

The post Why Your Financial Planner Needs to Know about an iPug Asset Protection Trust appeared first on Michigan Estate Planning.

by Thomas D. Begley, Jr., Esquire, CELA

For purposes of Medicaid long-term care services, New Jersey has always been an income cap state. That means that an individual’s income must not exceed 300% of the Federal Benefit Rate (FBR). Beginning January 1, 2015 that means that an individual’s monthly income cannot exceed $2,199. Historically, individuals in nursing homes were able to qualify for a “Medically Needy” program to spend their income down and qualify for Medicaid. Individuals requiring care in assisted living or at home were not eligible for the Medically Needy program and could not become eligible for Medicaid, if their income exceeded the cap.

New Jersey has obtained a waiver from the federal government whereby the state will abolish the Medically Needy program and individuals will be authorized to establish “Miller Trusts.” Miller Trusts are legal fiction. Under that program, individuals may deposit their excess income into a trust, and that income is not counted for income eligibility purposes. The money in the trust must be distributed for very limited purposes. These Miller Trusts are also known as Qualified Income Trusts (QITs).

QIT must meet certain conditions:

• they must contain only income of the individual;
• they must not contain resources, such as income from the sale of real or personal property or money from a savings account;
• they must be irrevocable;
• they must have a trustee to manage administration of the trust and expenditures from the trust as set forth in federal and state law;
• New Jersey must be first beneficiary of all remaining funds up to the amount paid for Medicaid benefits upon the death of the Medicaid recipient; and
• income deposited in the QIT can only be used for specific post-eligibility treatment of income and to pay for costs of care.

There will no longer be a Medically Needy program even for nursing home Medicaid recipients, although current recipients will be grandfathered. Funds must be deposited in a trust bank account. Bank charges cannot exceed $20 per month. The Social Security Number of the beneficiary of the trust is used not an EIN.

The trust can be established by the trust beneficiary or someone acting under a power of attorney or legal guardianship acting on behalf of the trust beneficiary.