November 21, 2016
Revocable Living Trust versus The Castle Trust: A Tale of Two Families
Wills….probate….Medicaid….your IRA….healthcare costs….trusts……..
As you move into your later years, there’s a lot to deal with financially and legally. And just one of those many things are trusts.
Yet, there’s a lot of different trusts out there and it’s hard to know which one to choose!
So today, we want to compare one of the most common trusts out there (the revocable living trust) with one you’ve likely never even heard of before (the castle trust).
Let’s meet two fictional families to see how each type of trust worked in their lives.
Meet John & Mary: The Revocable Living Trust Family
John and Mary Basic first heard about our Legal & Financial Planning for the Second Half of Life Workshop from a friend of theirs that worked with us a couple of years ago. When they first walked into the workshop, they were thinking about setting up a revocable living trust, just like their friend did.
After attending the workshop, John and Mary set up a free Vision Conversation where we were able to discuss more deeply what was important for them, figure out where they’re at, and decide where they want to go.
As we do with many of our clients, we recommended against just choosing a simple revocable living trust. Sure, it might avoid probate and control the distribution of assets….but that’s about it.
Instead, we recommended they chose a Castle Trust since it is also offers asset protection while John and Mary are alive…..and keeps what’s inside the trust safe from long-term care costs and lawsuits. However, because of its extra complexity, it takes quite a bit more time and effort to set up a Castle Trust. This means that it’s also a bit more of an investment than a normal living trust.
But at the time, John and Mary, who took pride in their frugality, didn’t believe a Castle Trust was worth the extra time, effort, or investment. So they decided to set up a basic revocable living trust and leave things at that.
Meet Gary & Debbie: The Castle Trust Family
Gary and Debbie Castle attended the same workshop John and Mary did, and also chose to set up a free Vision Conversation with a certified elder law attorney afterward.
Before the meeting, they weren’t really sure what they wanted to do. All they knew was that they wanted to make sure both themselves as well as their families had a secure future. And they had definitely never heard of a Castle Trust before (even though they had met with other attorneys and advisors in the past).
Ultimately, Gary and Debbie decided to move forward with a Castle Trust during their Vision Conversation. Although they were both healthy, they knew that life could throw them a curveball anytime (like the accidents or diagnoses that many of their friends got hit with). And because they worked hard to grow their net worth, they wanted to do what they could to protect everything that they had built over their lifetime.
10 Years Later….
Now, let’s see where the future took our two families.
John and Mary Basic: 10 Years Later
Seven years ago, John was diagnosed with Alzheimer’s. This wasn’t something that ran in his family, and it came as a big shock to John and Mary.
Unfortunately, his Alzheimer’s was fast-moving. The dementia-like symptoms were affecting his family to the point that, two years later, John needed to move into an assisted living community. Eventually, John transitioned into a nursing home…..where he and his family were suddenly stuck with a $12,000 per month (or $144,000 per year!) bill.
After John moved into the nursing home, Mary came back to our office to see what she could do to protect the assets in their living trust from the big bills the nursing home sent them monthly. She remembered they had set up a revocable living trust (while skipping the Castle Trust), so she wanted to know what options she had.
Unfortunately, we had to tell her that if she had set up the Castle Trust when we first met, 100% of their assets would be protected from nursing home and Medicaid spend down. However, since they had not set up the asset protection trust, we had to turn to a plan B: engage in a nursing home Medicaid crisis plan.
With this plan, we were able to protect just 50% of her assets. The rest were taken out of the trust and used to cover John’s long-term care costs (and there wasn’t anything John or Mary could do to stop it).
Gary and Debbie Castle: 10 Years Later
Three years after Gary and Debbie set up their Castle Trust, Debbie suffered a stroke and needed long-term care at home. Luckily, Gary and his two daughters were able to provide this for about two years. During this time, they were also able to afford home care to give some respite to Gary and his daughters.
At the five year mark, Debbie needed nursing home care. Gary and his daughters found a nursing home very close to Gary that was a perfect fit for Debbie. And unlike many nursing homes in the Metro Detroit area, it wasn’t rundown or full of complaints.
The only downfall of this nursing home was that it did not allow people to immediately come in and qualify for Medicaid. And while this would have instantly made staying in this nursing home impossible for many people, Gary and Debbie had an alternative. After paying privately for the first two months, Gary was able to get Debbie qualified for Michigan Medicaid because they had set up the asset-protecting Castle Trust five years ago.
And by setting up the Castle Trust five years ago, Gary and Debbie ensured that Debbie was able to get the best possible care for the least possible cost.
They were able to get the same care that everyone else in the nursing home was paying over $12,000 per month for…..100% covered by Medicaid. Plus, since Gary was able to protect his assets, he wasn’t left bankrupt just because Debbie needed long-term care .
Castle Asset Protection Trust or Revocable Living Trust?
Here’s the question to ask yourself now: which type of trust makes the most sense for you and your family?
Are you satisfied with a revocable living trust that avoids probate and controls distribution?
Or do you also want something that protects you and your family from long-term care costs?
To learn more about the Castle Trust and find out which type of trust is best for you, please attend one of our weekly Legal & Financial Planning for the Second Half of Life workshops where you can learn about avoiding probate, protecting beneficiaries, and protecting yourself.