Protecting what you’ve earned from life’s financial circumstances – whether they are health care costs, taxes, or creditor claims – requires a strategy known as asset protection. The objective of asset protection is to use tax, estate, and other laws to shield your wealth and property from unnecessary depletion. This approach is especially necessary if you are an older American with expected nursing care costs and other expenses on the horizon. Let SederLaw’s attorneys help you plan and prepare for your future with a personalized asset protection plan.
What To Know About Qualifying for MassHealth Coverage
MassHealth is a joint state and federal Medicaid program for low-income Massachusetts residents. When someone applies for MassHealth, the government will review the individual’s bank and other financial records in the five years leading up to the application date. This is known as the five-year lookback window and is used to ensure that truly needy individuals qualify. Using the lookback window, the government will search for certain assets and properties that are counted against an applicant for eligibility purposes.
Asset protection strategies can be used to reduce the number of assets counted against you when it comes to determining your eligibility for MassHealth.
Protecting Property from Taxes and Creditors
You can also use asset protection to shield certain properties from taxes and creditor claims.
For instance, various legal instruments can help reduce your tax liability. There are strict rules that apply when using asset protection tools for this purpose. It is imperative that before making any major financial decisions or signing any documents, you review both your finances and asset protection goals with a knowledgeable attorney.
The same generally applies to protecting your wealth and property from creditor claims. Although it’s not possible to exclude everything from creditor lawsuits and judgments, you can legally take a number of properties off the table and out of the reach of creditors.
How Asset Protection Can Help
Asset protection can therefore reap significant benefits in the areas of long-term healthcare, taxes, and debts. But it’s a good idea to start assembling your asset protection plan long before you think you may need it. For instance, because of the five-year lookback window attached to MassHealth eligibility, a comprehensive asset protection plan should be in effect for at least that much time.
Many of the options discussed below can be used to accomplish a variety of asset protection objectives, such as:
- Ensuring access to long-term health or nursing care without having to deplete personal assets to meet low-income eligibility criteria
- Insulating property from various forms of government taxes or creditor lawsuit judgments, sometimes while still having the ability access and use that property
- Doing the above without engaging in fraudulent activity or tax evasion or having to resort to drastic measures such as bankruptcy
Specific Asset Protection Strategies
With the above goals in mind, here are a few possible approaches your attorney may recommend:
One way to reduce countable assets is to outright transfer property to others. For example, you can sign and execute a deed to transfer your house to someone else (such as your child) while continuing to reside there. There may be tax consequences, however. You may lose your real estate tax exemption, for instance, and the person to whom you transfer the property may incur tax liability.
You need to understand both the implications of an outright asset transfer as well as the benefits. It’s also important to properly transfer the asset, and an attorney can assist with this process.
Life estate for your residence
Another option is to give your home to someone else and retain a life estate in it. Doing so enables you to have the rights and obligations of your property during your lifetime (such as living there). Upon your death, the property will pass to the individual you designated as beneficiary. Also, this may be done automatically without probate.
If this step is taken properly, it can protect your home from a Medicaid lien. And although you may be responsible for taxes on the property while you use it, your beneficiary could reap tax benefits. As one example, the life estate can reduce capital gains taxes when the house is sold.
But be sure to work with an attorney to carefully plan this strategy, especially with respect to MassHealth. If your house is sold during your lifetime, proceeds from it could count against you when you apply for the program. Also, these proceeds may be exposed to creditor claims.
This is another way to reduce your countable assets, especially for MassHealth qualification. There are also potential tax benefits. The federal government allows individuals to give gifts up to a particular amount each year without having to pay a gift tax ($16,000 per person as of tax year 2022). Your spouse can also claim this exemption. These gifts can reduce estate taxes which helps pass along more of your property to heirs rather than the government.
The gift tax approach can be complicated because of tax and creditor rules. As an example, you could cause the recipient of your gift to incur tax liability. Plus, if the recipient has creditors, they may be able to make claims against the gift you have made.
Creating an irrevocable trust
As the name implies, an irrevocable trust is one that cannot be revoked once it has been created. It also cannot be altered. These instruments play a critical role in maintaining MassHealth eligibility without depleting personal assets. They can also shield property from creditors.
With this method, assets such as your home are placed in an irrevocable trust. A trustee is named to manage it. Because the assets are transferred to the irrevocable trust, they are no longer considered to be your property. Nonetheless, you may still be able to use the property during your lifetime.
Once the assets are placed in the trust, and five years have elapsed (due to the five-year lookback rule), they won’t be counted against you. Also, creditors cannot take them because you would no longer be the legal owner of the property. But work with an experienced attorney to make sure this trust is created and used properly.
Contact Our Worcester Asset Protection Attorney
Other asset protection options may be available to you, depending on your goals and the property you own. The most important step you can take is to reach out to SederLaw. We take a multidisciplinary approach that draws from the experiences of our Estates & Trusts, Tax Law, and other practice groups. Connect with our dedicated legal team today.
SederLaw helps clients with estate planning law in Worcester from their primary office as well as clients throughout MetroWest from their Westborough office.