Are There Options to Nursing Homes?

Many people end up in nursing homes for their final years. But there are alternatives. With proper support and community involvement, it is increasingly likely that an individual in need of nursing home-type assistance can receive such attention while remaining in his or her home. Unfortunately, a person on Medicaid, under current law, will find it very difficult to accomplish that. However, if an individual has obtained long term care insurance which provides sufficient benefits, the policy can provide funds for nursing care and other care such as food preparation to allow the person to remain at home (also known as “aging in place”).

What is a Trust?

A trust is a separate legal entity (think “corporation”) set up to serve particular purposes. They include saving taxes, protecting funds from creditors or spendthrift beneficiaries, and controlling how the money is used. Commonly, trusts are included in a Last Will and Testament to provide support for a spouse and/or children. Another common trust is known as a living trust which is set up while the owner of the trust is alive. Although an expensive trust document to prepare, such a trust does have certain advantages such as maintaining privacy and expediting the transfer of real estate in more than one state.

Avoiding Probate

If all of your assets are jointly owned and you wish to have the co-owner of the account inherit it after your passing, this is a convenient way to avoid probate. But beware. A co-owner can withdraw all money in the account at any time. A safe way would be to list your intended beneficiaries on the bank account and have the bank account titled as payable on death (“POD”) to them. You would remain in full and complete control of the accounts during your lifetime and retain the right to change who will inherit it.

Is a Living Trust better than a Will?

Some people think that a living trust saves taxes. Not so. The tax man is not dumb. Both probate and non-probate assets (controlled by the decedent) are subject to taxation if they exceed applicable tax thresholds ($5M, federal; $1M, Maryland).

A living trust is a lengthy and complicated document which is expensive to prepare, certainly, much more than the typical will. In contrast, probate fees are paid after one’s death; attorney’s fees for preparation of a living trust are paid up front. Further, a living trust is of no use unless an individual goes to the trouble and expense of changing the names on real estate and car titles as well as various bank and other financial institution holdings.

WARNING:  Many people incur the expense of having a living trust prepared and then do not follow through in changing the title (ownership) of their assets. Without the follow through, the trust in that situation is worthless. A trust without assets is like an empty glass -- there is nothing in it to pour out.

Are Estate Taxes a Worry? Probably not.

The federal estate tax exemption recently increased to $5 Million. However, Maryland’s death tax remains at $1 Million. You can establish a special trust (“QTIP”) that will allow you to defer the payment of the tax if your spouse is the beneficiary of the trust.