Many asset protection plans we prepare for clients provide future financial security; that is, the client has no immediate financial threat, but one or more could arise in a few years. Undue influence from family or strangers, nursing home spend-down, or possible lawsuits could occur, but no one expects them anytime soon.

As to nursing home costs, the asset protection plan has value because it makes assets unavailable for spend-down and avoids penalties that arise from the five-year look-back period – but only if the plan is put in place soon enough.

An example demonstrates this point.

Assume Gladys, age 79, a Pittsburgh widow, owns $600,000 in assets she hopes to protect with an asset protection trust. Her income is $2,500 a month. She is currently healthy enough to live independently at home. We’ll assume (based on our current experience with clients in Allegheny County) that skilled nursing home costs will total $10,000 a month.

That means Gladys would need to spend $7,500 a month from her assets ($10,000 minus $2,500) to pay for nursing care if she needed it. If she creates and funds her asset protection trust now, the least she could protect from nursing home spend-down is $150,000. That’s because even if she, say, suffered a stroke the day after funding her trust, and beneficiaries used distributions from the trust to pay for her care, they would only need to pay for five years (60 months of care) until the trust funding was beyond the look-back penalty period. Therefore, paying for five years of care requires $450,000 ($7,500 per month X 60 months), leaving $150,000 protected in the trust.

But notice that for every month Gladys stays healthy enough not to need nursing care, the amount required to pay for care drops by $7,500, with a corresponding increase in the amount protected.

Staying healthy one month therefore leaves $157,500 in the trust; two months leaves $165,000; three months leaves $172,500; and so on.

Once Gladys realizes that her protected assets increase by $7,500 a month, she knows the importance of starting the clock ticking as soon as possible.

At our workshops, we discuss asset protection trusts (why they’re important and how they work) in more detail. The workshop is free, but you need to register in advance to make sure you have a reservation.

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