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inheriting the money that they otherwise trust’s benefits to apply to your particular
would. circumstance. At the time of writing, the
period is five years. Had Rose gone into
Let’s utilize the example of “Rose the nursing home within that window, she
Smith”, a fictional prospective client. would have been subject to a penalty.
Rose has pension and security income
of approximately $3,000.00 per month, As such, it is essential to plan as far in
and owns her home outright and free advance of any major medical ailment
of any mortgage. Her home is valued at as possible. It is never too soon to
$400,000.00, but she has few other assets. plan properly. As the above example
Rose knows that she wants to live in her demonstrates, proper planning is
home until her demise, but has a history tremendously beneficial to your loved
of Alzheimer’s in her family, and wants ones, and can be the difference between
to protect her major asset (in this case, leaving a substantial financial legacy
her home) so that her children will have to benefit your family, or paying that
a nest egg, and her grandchildren will money over to the government, or other
be able to go to college without taking unrelated third parties.
out student loans. Rose will nominate an
independent trustee (a trusted relative, Irrevocable Life Insurance Trusts
friend or colleague), transfer title of her The Irrevocable Life Insurance Trust (“ILIT”)
home into the Rose Smith Irrevocable is a unique instrument that serves several
Trust, and reserve herself a little estate. important purposes, two of which we will
Rose continues to live in her home, and touch on here. Many people are unaware
remains eligible for the same property tax that the proceeds of life insurance policies
exemptions to which she was previously are considered part of your estate for
entitled. estate tax purposes. By using a properly
drafted ILIT, however, you will bring the
Six years later, Rose requires nursing home value of any life insurance polices you
care, and spends three years in a nursing might hold outside of your estate for
home prior to her eventual passing. estate tax purposes on both the state and
Had Rose maintained her home in her federal level. For those of you whose net
individual name rather an transferring worth puts them at or near the estate tax
her home to the trust, her estate would threshold, an ILIT is a necessary part of
be liable to the nursing home for the cost your estate plan.
of the care - at $10,000.00 per month
for three years, $360,000.00. Her family An ILIT will also permit you to direct the
would inherit 10% of her estate, with the disposition of your life insurance proceeds
nursing home taking the remainder of the in a more specific manner than simply
funds. However, because Rose utilized designating a beneficiary. Frequently,
proper planning, the home passes outside our clients have their ILIT benefit their
of her estate, and her creditors cannot spouse during the spouse’s lifetime, and
collect against the house. upon the death of the spouse, benefit the
children of their marriage. Since an ILIT is
Upon her passing, Rose’s life estate a trust, you can give specific directions in
terminates, the house may be sold by her your trust instrument as to how the assets
trustee, and the full proceeds from the should be used, and protect the assets
sale - all $400,000.00 - are distributed from your heirs’ potential creditors.
to her heirs as per the terms of Rose’s
trust. It is important to understand that Estate Administration
there is a statutory “look back” period The following documents should be
which you must surpass in order for the brought to your attorney after the demise
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