Elmer and Gina Williams came to see me. They had a smaller farm operation, had moved off of the farm, and they had three children who had no interest in farming or ranching. They were in their mid-sixties and had a home in town, and about four hundred thousand in savings at the local bank in CD’s. Their land was valued just over one million five hundred thousand dollars. They had no long-term care insurance.
The first words out of their mouth when they came in to express their needs and goals were ‘We’d like to protect our farmland for our kids. Both of our parents received long-term care before they died and we’ve heard rumors this type of care would cost close to one hundred thousand per year’ said Gina.
Elmer said ‘We want to know if we should use an irrevocable trust or some other method of protecting our farmland. We feel like we should pay something towards our costs of care and that’s what the four hundred thousand is for, but we know from past experience this might not be enough’.
In most cases, people are curious about trusts to protect their property. Trusts fall under two basic categories – revocable and irrevocable. Revocable trusts provide no protection from Medicaid, so then irrevocable would be the next option.
For an irrevocable trust to protect property, certain conditions need to be met. One, you have to transfer the property today but it’s still subject to a five year look back by Medicaid. All transfers – no matter what you do – are. Second, the grantors – in this case Elmer and Gina – can only be income recipients of the trust. Naming themselves as trustees – although doable – is inviting disaster if they ever do anything deemed to be self-serving by Medicaid. A safer route would be to name a trustee.
The bad part about an irrevocable trust is the grantors have no say over how the property is managed and if they do, they invalidate the trust. Also, if life changes in the future, all the terms of the irrevocable trust cannot be changed.
We then discussed a life estate – which has the same protections as an irrevocable trust. The advantages – in North Dakota – are the property again is protected after five years – with the exception of the income. However, the life estate owners retained the right to income and use of the property.
“Both of our parents – his dad and my mom – needed long-term care prior to age seventy and we’re concerned we may be caught short on that five year look back by Medicaid. Do you think the money we have is sufficient?” queried Elmer.
Four hundred thousand dollars would seem like a lot of money, but with upper care costs now reaching five hundred plus per day ($180,000/year), who knows? Medical insurance used to have a one million dollar limit, then change to a two million dollar limit and now has been removed entirely because neither of these sums was sufficient as time passed.
We decided to take half of the four hundred thousand dollars and we put it into an asset based long-term care policy. This two hundred thousand dollars bought four hundred and twelve thousand dollars of either death benefit or long-term care benefit that either spouse could use during their lifetime.
Traditionally, men have short-term expensive stays in long-term care whereas women have less expensive but much longer term stays with escalating costs over the years.
The plan provides one hundred percent liquidity from year one and if they needed any of the money for income later, they could access it the same as they could with their CD’s. With the death benefit, if both of them needed care of, say, a total of $150,000 during their lifetimes, their children would still receive the $260,000 difference from the death benefit. I was also able to check with a multitude of top-rated companies to ascertain they got the best product for their money.
By rearranging ownership and their assets, Elmer and Gina were able to have a much more certain future for their children and the protection of their assets.
“Keeping the Family Farm in the Family”
Great Plains Diversified Services, Inc.
1424 W. Century Ave., Suite 208
Bismarck, ND 58503-0917
Toll Free: 1-800-373-4078