Gifts as a way to Protect against Long Term Care Costs – Comparing Strategies

Today’s blog post continues the series about giving money away as a method to plan ahead for protection against long term care costs.  My post of September 19, 2014, the first installment of the discussion on gifting, described how the Medicaid “Aged, Blind and Disabled” program and the Department of Veterans Affairs “Pension” (aka VA “Aid and Attendance”) program look at assets given away.  My post of September 25, 2014 discussed transferring assets to a trust for protection against long term care costs.  My post of October 2, 2014 discussed transferring assets to a Limited Liability Company for protection against long term care costs.  My post of October 9, 2014 discussed transferring assets to your children (or other family members) for protection against long term care costs.  My post of October 16 discussed transferring assets to a charity as a way to protect against long term care costs.  My post of October 23 discussed transferring assets to your spouse as a way to protect against long term care costs.

The current series on gifting is part of a more comprehensive series on possible ways to plan ahead to protect against long term care costs.  Previously, my blog discussed long term care insurance as an approach to planning ahead for long term care costs.  In the long term care portion of this discussion, my post of May 22, 2014 discussed whether to buy long term care insurance at all.  My post of May 29, 2014 suggested looking for a stable, proven insurer.  My post of June 5, 2014 described how to identify a proven, stable Long Term Care insurance company.  My post of June 12, 2014 discussed the importance of protection against inflation. My post of June 19, 2014 suggested planning to use insurance to pay for four or five years of long term care.  My post of June 22, 2014 suggested a daily rate to choose when purchasing long term care insurance.  My post of July 10, 2014 advised to look carefully at the list of Activities of Daily Living that can trigger coverage from the long term care insurance policy.  My post of July 17, 2014 described the differences between a “period of time” kind of coverage and a “pile of money” kind of coverage.  My post of July 25, 2014 advised to make sure that the long term care insurance includes coverage for cognitive impairment.  My post of July 30, 2014 described the differences between tax-qualified and non-qualified policies.  My post of August 5, 2014 discussed the value of long term care insurance policies that qualify for the Partnership program.    My post of August 14, 2014 discussed hybrid policies that combine long term care insurance with life insurance.  My post of August 21, 2014 described how a long term care insurance policy with a return of premium rider can be used to construct a “hybrid” life insurance/long term care insurance policy.  My post of August 28, 2014 described how to use a partnership policy to protect just enough of your life savings while holding down the cost of the insurance.  My post of September 5, 2014 described how to coordinate long term care insurance with potential veterans benefits.  My post of September 12, 2014 discussed how an elder law attorney can help maximize the value of long term care insurance.

The introductory post in the series on planning ahead for long term care costs appeared on May 15, 2014.

Today’s post, as part of the sub-series on to how to give assets away, summarizes and compares the different gifting strategies.

Gifts to a spouse do not have any effect on Medicaid or VA Pension eligibility.

Gifts to a trust are the most highly protected from risks because the beneficiaries (the people whom you wish to eventually receive your money) cannot get to the contents of the trust except through the discretion of the trustee.  The beneficiaries’ creditors cannot get into the trust to collect on beneficiaries’ debts.  But, the trust pays the highest tax rate, holding down its growth.  In addition, the trust will have some initial set up costs and some ongoing administration costs.

Gifts to a Limited Liability Company are well protected because the members of the LLC (the people whom you wish to eventually receive your money) cannot get to the assets of the LLC except through the managing member.  In addition, the income of the LLC is not automatically taxed at the highest tax rate.  Each member pays his or her share of the tax at his or her applicable tax rate.  Members’ creditors, however, may be able to take the members’ ownership interest in the LLC.  (Creditors can’t get at the assets inside the LLC except through the decisions of the managing member, but they can become members of the LLC in place of the original members’ because of the original members’ debts.)  In addition, the LLC will have some set up costs and some ongoing administration costs.

Giving to children (or close friends) is the easiest and least expensive gifting method.  There are no set up costs and no administration costs (like with an LLC or trust.) not protected at all from the child’s risks.  It is also the most flexible gifting method if you don’t hold back enough assets to support yourself because it is easy for a child to just give some money back when you need it.  Giving to children is, however, the riskiest gifting method.  Once the child receives the assets, the child’s creditors can pursue the assets easily.

Giving to charity is completely inflexible and should be done (if at all) with only a small part of your assets and then only in line with the charitable practices that you would follow under “normal circumstances” (i.e., Don’t let the with to pre-plan for long term care costs cause you to give much more to charity than you would otherwise give.)  The gifts to charity will be used by the charity almost immediately, so there is no way to reverse the gift if you miscalculate your future living expenses.

No matter which gifting strategy seems best for you, do not give away all of your assets.  You need to hold back enough to support yourself.  Because this discussion is about gifting before you need care, there won’t be any Medicaid or VA Pension benefit coming in the near future that you can use to pay your bills.  You must hold onto some of your assets.

Above all else, please remember that the gifting strategies discussed in this series are for long term care PRE-PLANNING (i.e., when you are worried about, but don’t yet need, long term care.)  The analysis in this series is not appropriate for someone who needs care now or will probably need care within 5 years.

For more information, visit Jim’s website.

Jim Koewler’s mission is
“Protecting Seniors and People with Special Needs.”

For help with long term care or with planning for someone with special needs,
call Jim, or contact him through his website.

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