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per month at the time of writing. In
the downstate region, the cost of such
care already exceeds that number by
approximately 20%. As such, the cost of
care quickly diminish your hard earned
savings, and prevent your children from
inheriting the money that they otherwise
would.
Let’s utilize the example of “Rose
Smith”, a fictional prospective client.
Rose has pension and security income
of approximately $3,000.00 per month,
and owns her home outright and free
of any mortgage. Her home is valued
at $400,000.00, but she has few other
assets. Rose knows that she wants to live
in her home until her demise, but has a
history of Alzheimer’s in her family, and
wants to protect her major asset (in this
case, her home) so that her children will
have a nest egg, and her grandchildren
will be able to go to college without taking
out student loans. Rose will nominate an
independent trustee (a trusted relative,
friend or colleague), transfer title of her
home into the Rose Smith Irrevocable
Trust, and reserve herself a little estate.
Rose continues to live in her home, and
remains eligible for the same property tax
exemptions to which she was previously
entitled.
Six years later, Rose requires nursing home
care, and spends three years in a nursing
home prior to her eventual passing.
Had Rose maintained her home in her
individual name rather an transferring
her home to the trust, her estate would
be liable to the nursing home for the cost
of the care - at $10,000.00 per month
for three years, $360,000.00. Her family
would inherit 10% of her estate, with the
nursing home taking the remainder of the
funds. However, because Rose utilized
proper planning, the home passes
outside of her estate, and her creditors
cannot collect against the house.
Upon her passing, Rose’s life estate
terminates, the house may be sold by her
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trustee, and the full proceeds from the
sale - all $400,000.00 - are distributed
to her heirs as per the terms of Rose’s
trust. It is important to understand that
there is a statutory “look back” period
which you must surpass in order for the
trust’s benefits to apply to your particular
circumstance. At the time of writing, the
period is five years. Had Rose gone into
the nursing home within that window, she
would have been subject to a penalty.
As such, it is essential to plan as far in
advance of any major medical ailment
as possible. It is never too soon to
plan properly. As the above example
demonstrates, proper planning is
tremendously beneficial to your loved
ones, and can be the difference between
leaving a substantial financial legacy
to benefit your family, or paying that
money over to the government, or other
unrelated third parties.
Irrevocable Life Insurance Trusts
The Irrevocable Life Insurance Trust
(“ILIT”) is a unique instrument that serves
several important purposes, two of which
we will touch on here. Many people
are unaware that the proceeds of life
insurance policies are considered part of
your estate for estate tax purposes. By
using a properly drafted ILIT, however,
you will bring the value of any life
insurance polices you might hold outside
of your estate for estate tax purposes on
both the state and federal level. For those
of you whose net worth puts them at or
near the estate tax threshold, an ILIT is a
necessary part of your estate plan.
An ILIT will also permit you to direct the
disposition of your life insurance proceeds
in a more specific manner than simply
designating a beneficiary. Frequently,
our clients have their ILIT benefit their
spouse during the spouse’s lifetime, and
upon the death of the spouse, benefit the
children of their marriage. Since an ILIT is
a trust, you can give specific directions in
your trust instrument as to how the assets