Beware What You Read in The Headlines…Do Asset Protection Trusts Still work?

There was a recent article in the Livingston County Press entitled

“The Appeals Court Rules Against a Way of Using Trust: Couples can’t draw Medicaid and Protects Assets in Trust”, that was written by Lisa Roose-Church of the Livingstone Daily. I read this article after seeing the headline and

much to my dismay, the headline wasn’t very descriptive of the truth about trusts and asset protection.

What the article is referencing is a court case that went to the Michigan Court of Appeals regarding a Sole Benefit Trust (SBO Trust). A sole benefit trust is a type of trust that was used during Medicaid crisis planning when we had a husband and wife where one spouse needed long-term care and the other spouse was healthy. We were able to use the Sole Benefit Trust to move the assets from the sick spouse to the healthy spouse. However, in August, 2014 the State of Michigan disallowed the use of Sole Benefit Trusts moving forward.  So, this article is pretty uneventful.

Keep in mind this is just trusts for Crisis Planning, not pre-planning trusts, like the Castle Trust.

The Sole Benefit Trust (SBO Trust) was a form of Medicaid crisis planning that attorneys would utilize if there weren’t any proper planning set up or pre-planning ahead of time.

Basically, a family could be over on assets for Medicaid, not do any planning, wait until a loved one was in a nursing home, and then they could do this sole benefit trust to gets the assets to the healthy spouse.

Well, in 2014 in August under Governor Snyder, the Department of Health and Human Services ruled that sole benefit trusts were now available assets. This has been true since 2014, and this court case has been bouncing around since then. The Court of Appeals finally got around to ruling on that, and not very surprisingly they ruled that the sole benefit trust was an available asset.

Now, the headline makes it seem like all trusts fail when it comes to Medicaid planning, but that’s just not the case.

What this court case was getting to was the use of a crisis planning technique versus what many of my clients utilize, what’s called a pre-planning technique where we’re getting around that five-year look-back period for Medicaid.

Where we’re setting up a Castle Trust ™ which is a form of trust that works to protect assets for long-term care costs, and has been effective for many years.  In fact,  the principles have been around since the early ’90s.

That type of trust still works. What does not work is some of these last-minute Medicaid crisis planning techniques.

The government is always looking to close the door on some of those last-minute planning techniques, but they are aware of the pre-planning with castle trusts. In fact, not only are they aware of it, they do not look unfavorably towards it.

For example, in 2006 the look-back period of Medicaid used to be three years, and they changed it to five years, but what they did is they grandfathered in any prior planning. If we set up an asset protection trust in 2005, they made the change in law in 2006, they still allowed us to keep that three-year look-back period. Let’s say the government does decide to outlaw the use of castle trusts or pre-planning trusts.

Worse case scenario what they might do is they might say that the look-back period instead of being five years is now seven years. However, if they were to do that, most likely what they would do is they would grandfather in any prior planning. Clients with Castle Trusts, that is– trusts to start the five-year clock ticking for Medicaid, those trusts still do in fact work. What does not work is crisis planning techniques using a Sole Benefit Trusts.   But that is really old news, so this story, is really a non-story.

Castle Wealth Group Legal in Media

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