In old age, high unreimbursed medical care costs, especially those for long-term care, threatens the retirement wealth of many. You do not know if you will one day lose retirement savings due to assisted living, memory, or adult family home care costs. Nursing homes cost even more. However, you do have the ability to implement a legally authorized asset protection to reduce and, in many cases, eliminate the chances of suffering wealth erosion. This continues your quality of life to the end and that of your spouse. Finally, you are far more likely to have an estate left over at the end to pass to your children as a legacy.

The problem we are trying to solve

Married couples have many legal benefits available to them that singles lack. One such legal advantage to marriage is the Spousal Protection Trust, authorized by 42 USC Section 1396. This trust must be created by a Will, which directs the flow of assets once owned by a deceased asset owner. Once funded, the assets in the trust are managed by a trustee. The trustee is responsible for paying for the maintenance, education, support and health of your spouse provided the items and services purchased are not provided by a needs-based program especially Medicaid. If operated according to the properly drafted trust provisions, any government agency will not consider the assets the property of the surviving spouse.

Medicaid, for example, is a federal benefits program that will required your spouse to spend down her assets to two thousand dollars in the event she applies for long-term care benefits. Long-term care costs are very high and many Americans lose all or a significant part of their wealth due to this harsh spend-down limit. Congress fully realized this rule was harsh, often impoverishing the surviving spouse, and enacted a statute that authorizes the Spousal Protection Trust to hold the survivor’s inheritance. It is, therefore, moral, legal, and financially responsible to create the Trust for your spouse so she can finance all of her remaining years.

Another advantage of this plan is its convenience. When anyone with wealth dies, uncertainty and stress ensues. The term “estate” refers to the collection of assets of a now dead asset owner. An estate is governed by a Last Will and Testament, which provides the rules for transferring your wealth and setting up trusts. Probate court accepts the Will and provides the rules of operation until all claims against the estate are paid and the estate is distributed according your wishes. The alternative methods of transferring wealth is by living trusts, community property agreements, pay-on-death deeds, and beneficiary designations. These methods have one thing in common: they transfer title to the assets to your spouse instantly. Once she owns an asset, it is now subject to Medicaid spend-down rules, transfer penalties, and liens. In the estate tax arena, when the survivor receives assets outright, they are not allowed to be included in the calculation of the estate tax exemption, i.e., a credit. These simple mistakes, in the name of convenience, often result in unnecessary tax bills.

The Solution

A better approach is to clearly define your goals. If your objective it so transfer and protect your family’s wealth especially for your spouse, then the Spousal Protection Trust is the only choice. In the hierarchy of law, Federal Law, which authorizes this trust, is second only to the U.S. Constitution. When implemented, you will have a clearly defined estate transfer plan and a premiere asset protection plan.
The Spousal Protection Trust solves another problem. It reduces stress. Assuming you discuss the plan with your family, appoint a future decision maker from the family who will be responsible for beginning a probate and then manage the money in the trust for the benefit of his or her surviving parent, then won’t it be nice for the entire family to realize that they are not responsible for locating, transferring, and protecting money that is outright, i.e., exposed. A well drafted Will that includes the Spousal Protection Trust gives peace of mind because it tells everyone exactly what to do, what they will receive, and when.

How it Works

Many people think that trusts are complicated, expensive to create, and the management fees are too high.  Some trusts are complicated.  A Spousal Protection Trust is not one of them. It is easy to understand and easy to administer.  See for yourself.  Click the link and it will show you the provisions in a Spousal Protection Trust.  This particular sample includes estate tax and retirement account provisions.  This makes the sample a little more complicated than a Living Trust but the entire set of paragraphs takes up less than nine type-written pages, three if the retirement and tax language was taken out.

The process of setting up a trust is also simple. Trusts have been around since Roman times. Financial institutions, like your bank, deal with trusts on a daily basis. In your case, once the probate court appoints a Personal Representative, aka, an Executor, they may simply take the court paperwork to the financial institution that will open the account. From there, the Bank creates a new account by use of the same computer system and methods they used when they opened any of your accounts during your entire lifetime. The Bank then transfers the assets from the estate account. At that point, your estate plan as been set up and funded. Your Personal Representative will close the estate.   

How to get a Spousal Protection Trust

The cynics are right about one thing.  Spousal Protection Trusts are expensive to create – IF you hire an attorney to do it for you.  Law firms charge thousands of dollars for these plans, often in excess of six thousand dollars. However, the price to set up a Spousal Protection Trust when you use the Academy’s drafting app for a Will is nothing.  That is, there is no additional fee to include the Spousal Protection Trust in your Will than the price of purchasing just a Will. Click here for our current pricing.

One difference between hiring an attorney is that the attorney will not spend time with you explaining the execution of the plan, especially after the probate is closed. Legal documents are not enough to smoothly protect your wealth. Familiarity with basic concepts and terminology with step-by-step guidance is more valuable than professional services. Imagine if you could attend a free virtual meeting weekly with other Family Leaders who are beginning, midway through, or have finished the process but linger to help others and keep learning. What if this weekly meeting was led by Darol Tuttle, an experienced attorney and founder of the Academy? We answered this question by creating a membership level called Family Leaders. One of the benefits of being a family leader is that you can attend weekly and ask any question about planning, get immediate answers, walk away with free resources to include legal guides exclusive to Family Leaders. At the time of this writing, the price of Family Leader membership was just $44.00 per month. You can sign up for a trial run of Family Leaders, attend four Office Hours, ask any question you have about the Spousal Protection Trust, and then cancel without incurring any fee if you are not satisfied within thirty days.

Conclusion

The Spousal Protection Trust is well-established and authorized by the highest body of law in the nation on such matters. The trust holds the assets you intend to leave to your spouse in a trust created by a Will preventing Medicaid and other similar agencies from requiring that the assets be spent down or subjecting them to penalties and liens. This gives peace of mind because the trust is part of a very clear plan that will be implemented by your family members or a professional trust company.