As an attorney who teaches lawyers across the country about estate planning, elder law, Medicaid planning, Veterans benefits planning, and asset protection planning, it is amazing to me how much confusion there is among lawyers as to what asset protection really is.  If there is that much confusion with lawyers, I could only image the confusion with their clients.  So what is asset protection?

Asset protection laws deal with the protection of your assets against future creditors.  Asset protection planning cannot be done to avoid having to pay existing creditors or existing obligations.  The most common protection sought is protection from the “nursing home” or other long term care costs.  Asset protection also includes the protection of assets from lawsuits, one’s own poor decision making, or fear of not having the mental capacity to manage the assets you have accumulated.  All of these are forms of asset protection planning.

The fundamental distinction of asset protection laws is they require you to give up your right to that which you want to protect.  To restate that, if you want to protect your bank account, you must give up the right to it, but you don’t have to give up the right to the interest your bank account earns and you don’t have to give up control of your bank account. The law is very simple: whatever you can get, your creditors and predators can get.  Most people confuse asset protection planning with estate planning. When planning to avoid estate taxes, you must give up 100% of your rights to access your money, benefit from your money or change the beneficiary of your money. Additionally, you can never again control your money. These strict rules are imposed by the IRS to discourage individuals from planning to avoid estate taxes. The asset protection rules, however, are much less restrictive. You can control your assets, manage them, change who you want to receive them and even benefit from your assets (i.e. live in your home after it is transferred to an asset protection trust, maintain the income on your assets, etc.). Even with these retained rights, benefits and powers, your assets remain protected from your future predators, creditors and long term care costs.

Planning for long term care costs required an understanding of Medicaid laws.  Medicaid is a state and federally funded program created to pay for the healthcare of the poor.  There are also Veteran’s benefits available to help pay long term care costs if you served in the military during World War II, Korea, Vietnam or the Gulf War. Protecting your assets to ensure Medicaid or Veteran’s benefits eligibility to help pay your long term care costs is a higher standard than general asset protection.  With general asset protection, once you give up the right to your assets, it is protected from all future creditors and predators.  The rights you retained (i.e., income) however, will not be protected. But, with Medicaid and Veteran’s benefits, if you give up your assets there are additional strings attached for a period of time to ensure there was no “scheme” to give away your assets and have these government funded programs pay for your long term care costs.  In addition, Medicaid has certain additional restrictions if a trust was created for you by your spouse.  In most cases they will consider all assets in that trust as “available to pay for your care” but with proper planning, you can protect your assets from long term care costs and remain eligible for Medicaid and Veteran’s benefits.

Don’t be confused, get informed, we provide complimentary workshops on the distinctions between asset protection, Medicaid, Veteran’s benefits, and estate planning so you can be properly informed on these very important issues.  We hope you will join us.