Invariably, in every workshop I present, the question is asked: “When should I give my house (or other assets) to the kids?” My answer is quick, swift and with a smile: “You never want to give anything to anyone you love.”
That usually gets their attention and draws a frown. Giving assets to your children usually defeats the goal of every estate plan. Why would anyone want to give their assets to children? The usual response is “I want to protect the assets.”
I respond, “So the way you protect your assets from your creditors and predators is to give it to your kids so those assets are subject to all their creditors and predators? Who has more creditors and predators, you or your kids?”
The key element in asset protection planning from creditors and predators, or for Medicaid eligibility and long-term care, is to know the options available. Transfer of assets to your kids subjects those assets to risk by the children’s potential bankruptcy, divorce, lawsuits and even their death.
Transfers can have adverse income tax consequences because gifts or transfers are made with a “carryover” tax basis; they take the asset at what you paid for it. This is extremely detrimental with highly appreciated assets because it triggers income tax on sale that would not otherwise be due had the client held it until death and then transferred it to the children. The key point is to know how to get the best of both worlds.
That’s where the MCT (Medicaid Compliant Trust) works. The MCT allows the grantor to be the trustee; to benefit from the trust; to change beneficiaries or any other provisions they desire.
This is very empowering to clients who believe once you create an irrevocable trust, you can’t change it, you can’t benefit from it, and you can’t control it.
The core distinction in a MCT trust is that you must give up only what you want to protect. For example, if you want to protect your assets, you must give up, forever, the right to own those assets. But you do not have to give up the right to control those assets, manage those assets or even get the beneficial interest and use of those assets!
Grantors benefit from their assets that they no longer can reach by living in the house they have transferred or by continuing to receive income and dividends from investments put in the MCT. Most people realize they don’t really need the assets; they just need the income produced from them and want to maintain control.
For those who do need immediate access to all assets, they are not candidates for the use of the MCT asset protection trust. They would use a typical revocable living trust, which can accomplish their estate planning needs such as transferring assets to their children at death without probate, in a trust that children can control and benefit from any time they want – but creditors or predators can never invade those assets, for the life of the child! The money is flat-out safe.
Why would anyone give anything to anyone they love when they can give it to an MCT that protects it for them while they’re alive, and for their children for their lifetimes after they’re gone?
Brian T. Treacy is an elder law and estate planning attorney, and owner of Elder Law & Estate Planning Center in Bluffton. hiltonheadelderlaw.com