Living Trust Plus Frequently Asked Questions

Q: I’m still healthy. Why should I care about avoid nursing home expenses?

A: Because 70% of Americans who live to age 65 will need long-term care at some time in their lives, and because 50 percent of all couples and 70 percent of single persons become impoverished within one year after entering a nursing home. You can't just hide your head in the sand and hope that you are never going to need nursing home care. The best estate plan in the world is useless if you wind up in a nursing home all of your money on long-term care.

Q: What is the Living Trust Plus™ and how does it work?

A: The Living Trust Plus™ is an irrevocable asset protection trust that you create while you are living, that protects your assets from probate PLUS creditors PLUS Medicaid.  You receive all ordinary income (interest, dividends, rent, and royalties) from the trust assets (at least annually, but as often as desired), including the right to live in any trust-owned real estate, but you can not have direct access to principal. If either you or your spouse has direct access to principal, the assets in the trust would be deemed "countable" for Medicaid eligibility purposes and would be completely available to almost all other creditors. Prohibiting direct access to principal is the key to why the Living Trust Plus™ works -- for general creditor protection and for Medicaid asset protection.

Q: Does the Living Trust Plus™ completely avoid probate, just like a regular revocable living trust?

A: Yes, if properly funded.  So long as all assets are either titled in the Living Trust Plus™ or name the Living Trust Plus™ as the beneficiary on death, probate will be avoided.

Q: You say I can't have direct access to my principal. Does this mean I may have indirect access to the trust principal?

A: Possibly. There are two ways that you can have possible indirect access to the trust principal. The first way is that the trust is written so that the Trustee has the ability to make distributions of principal to the trust beneficiaries, who are typically your adult children. If the Trustee distributes principal to a trust beneficiary, that beneficiary can then voluntarily return some of that principal to you or use it for your benefit.  There must not be any prior agreement that a trust beneficiary will return some of that principal to you or use it for your benefit.  The second way for the Settlor to get at the trust principal is for the trust to be terminated, as explained below.

Q: I thought we were talking about an irrevocable trust? How can an irrevocable trust be terminated?

A: The Living Trust Plus™ is an irrevocable trust, and many people, including lots of good estate planning attorneys, think that means the trust can never be revoked. But the fact is that the term "irrevocable" means only one thing - that the trust can not be unilaterally revoked by the creator of the trust. Although the Living Trust Plus™ is irrevocable and can't be revoked unilaterally by the settlor, under common law and under the Uniform Trust Code, a non-charitable irrevocable trust can be modified, terminated, or partially terminated upon the consent of the trustee and all trust beneficiaries.

Q: What kind of people use the Living Trust Plus™ ?

A: Typically clients who are in their mid-60s to mid-80s, already retired, and worried about the potential catastrophic cost of long-term care, and they want to protect the nest egg that they've been saving for a rainy day. The rainiest possible day for most people is the day they start needing nursing home care, and if they want to truly protect their nest egg and have it actually benefit them when the time comes, they know they need to do something to shelter that money. The Living Trust Plus™, for many people, is the best way to do that.

Q: What about Long-Term Care Insurance?

A: Most Living Trust Plus™ clients don't have long-term care insurance because they're too old to afford it or to qualify for it, or they have a medical condition that prohibits them from getting it. For many clients, the Living Trust Plus™ is the best possible alternative to purchasing long-term care insurance.

Q: What assets can go into the Living Trust Plus™ ?

A: The main types of assets that should be funded into the Living Trust Plus™ are the primary residence, any secondary residence, any non-mortgaged investment real estate, any non-qualified financial investments, ordinary bank accounts, and life insurance.

Q: Are their any capital gains tax implications for selling my home if I have titled my home into my Living Trust Plus™?

A: No. The capital gains tax implications of selling a home from the trust are no different than if you sold it yourself as an individual.  The Living Trust Plus™ does not affect the $250k capital gains exclusion available to each owner on the sale of a primary residence.

Q: Are their any other tax implications in connection with the Living Trust Plus™?

A: No.  The Living Trust Plus™ is completely tax neutral - i.e., it will have no effect on your income tax, capital gains tax, or estate tax.

Q: Does a married couple create one joint Living Trust Plus™ or two separate trusts?  And what happens on the death of the first spouse?

A: A married couple will typically create two separate trusts, and typically nothing changes on the death of one spouse, as both trusts were already irrevocable prior to death. For married couples with estates larger than the Estate Tax exemption equivalent amount ($1 million in 2011), the Living Trust Plus™ is designed to utilize both exemptions.

Q: Are there any assets that can’t go in to the Living Trust Plus™?

A: The assets that shouldn't be transferred into the Living Trust Plus™ are your qualified retirement plans (e.g., IRAs and 401(k) plans) and your primary checking account. Most states treat qualified retirement plans as countable resources for Medicaid, so if you want to protect the assets in your qualified retirement plan from Medicaid by using the Living Trust Plus™ you will need to cash out your retirement plan first, and pay any income taxes that are due as a result of terminating the plan.  We usually do not put annuities into the trust either, but it depends on the type of annuity.

Q: Is there a diagram showing how the Living Trust Plus™ works?

A: Here it is: