Self-help Guru Stephen Covey writes a lot in his book “The Seven Habits of Highly Effective People” about how “interdependence” is vital and involves working in a “synergistic way” with the world around us. Nowhere is this concept more important than creating synergy in your Florida estate plan by integrating elder law asset protection, and this is the focus of this article.
Google defines “synergy” as “the interaction or cooperation of two or more organizations, substances or other agents to produce a combined effect great than the sum of their separate effects.”
Florida Estate Planning, Elder Law and Asset Protection are Interdependent on Each Other
We often do not see things as symbiotic, interdependent, or synergistic. Rather, we tend to put things into separate broad categories so life becomes easier to understand. In the world of estate planning, this tendency can result in poor planning. For example, it is easy for people to think about Florida asset protection as separate from Florida estate planning, as separate from Florida elder law or Medicaid planning in Florida.
As a result, when folks seek estate planning, they often are only thinking about getting some basic estate documents such as a “last will & testament” or a “durable power of attorney”, and they may not be thinking about preserving assets from exposure to lawsuits or the ramifications of Medicaid if the need for long term medical assistance arises.
The Importance of a 360 Degree Estate Plan
I have written about this in the past and I repeat it because it is so important and it underlays my philosophy as an estate planning attorney to assure that a client considers 360 degrees of protection.
360 degrees of legal asset protection I means that 4 basic quadrants of a circle should be considered in EVERY Florida estate plan which are:
- Wills, Trusts and Other Essential Documents
- Protection of Personal and Business/Investment Assets From Lawsuits
- Medicaid and Long Term Medical Care Planning
- Planning for Probate and Trust Administration
Taking Care of Estate Planning Essentials First
Putting together the basic estate planning documents is a first step.
The three critical Florida estate planning documents that work together are the Florida last will & testament, the durable power of attorney in Florida and the Florida advance medical directive and the life events are death, disability and incapacity.
Of course this approach is a simplification and yet it is a good start for anyone seeking to understand estate planning. From here we add the possibility of using a Florida revocable living trust for probate avoidance planning in Florida.
Essentially, if all assets are titled in a revocable living trust, then the need for probate may be eliminated and the successor trustee can “step in” to care for beneficiaries (you are “grantor” and the initial beneficiary) who are disabled or incapacitated and this is a better scenario than simply relying on the power of attorney or medical directive because the successor trustee has a “fiduciary duty” to you as the beneficiary.
Taking Care of Other Asset Protection Essentials
Asset Protection Pros and Cons With Revocable Living Trusts and Using LLCs
From here, we move on to address general asset protection concerns. Your revocable living trust can provide asset protection for your heirs and a well-drafted revocable living trust should provide for this protection. A Florida revocable living trust does not protect you with asset protection as the “grantor” from lawsuits and so other steps should be taken to provide for this protection. Utilizing a good “asset protection LLC in Florida” may be a great step for protecting your investments, business assets or high value personal assets.
LLC Tip: Just filing an LLC is not enough because 90% of the protection is in the “Operating Agreement”. The Operating Agreement for your LLC may also circle back to address your estate planning concerns which are typically what will happen if the business owner (LLC Member) passes away or becomes disabled or incapacitated.
Using other kinds of irrevocable trusts in Florida (and other states) may be a sound asset protection option depending on your circumstances. Within this possible category of planning are irrevocable life insurance trusts, charitable trusts and domestic or foreign asset protection trusts. Usually, irrevocable trusts are an option that is more appropriate for higher net worth households due to the cost of set up and maintaining these trusts. There are also irrevocable trusts for Medicaid planning which we will talk about below.
5 Elder Law Asset Protection Tips in Florida
All of the above interrelates to our final quadrant which is elder law asset protection a/k/a pre-Medicaid planning. This quadrant is often easiest for estate planners to miss because it is less obvious and frankly the technique are lesser known and practiced within the profession. Here are 5 common approaches to an elder law asset protection plan in Florida.
1. Transfer of Assets Between Spouses and Refusal of Support
Elder law asset protection may involve transferring assets away from the estate owner or between spouses. The benefit of transferring assets between spouses is that there is no look back period or penalties for doing so in Florida. So, if one spouse needs to get qualified for Medicaid in Florida, all assets can be transferred to the well spouse. Keep in mind that the well spouse still as a limit of non-exempt assets that he or she can keep and this is about $122,000 in assets. However, if a spouse elects to refuse support, it is currently possible to allow them to keep much more. This is an approach that requires the assistance of a skilled elder law attorney and is most likely to be successful where second marriages and children from prior marriages are concerned.
2. Using Irrevocable Income Only Trusts or Other Irrevocable Trusts
Irrevocable income only trusts are another effective way to transfer assets while reserving some very limited rights to the estate holder. In Florida, like other non-spousal transfers, a transfer to any irrevocable trust is subject to a 60 month look back and Medicaid penalties can result for any transfers inside of this 60 month period prior to applying for Florida Medicaid benefits.
3. Using Special Needs Trusts
For folks under age 65 and on SSI (need based) disability, Florida special needs trusts are a common way to preserve assets while maintaining qualification for benefits. For folks over age 65, Medicaid applies to these same benefits and “pooled” special needs trusts are the often the option of choice for protecting certain assets while maintaining qualification for Medicaid. Importantly, there is a repayment provision on these trusts, so it may be important to exhaust other options before choosing this one. However, it becomes a viable solution when waiting beyond the lookback period is not an option and other solutions such as paying down a homestead OR using a personal care agreement is not realistic.
4. Using Personal Care Agreements
Using a personal care agreement (a/k/a personal service contract) can be an option where a family member is providing regular care beyond what is being covered by Medicaid. This is a way to allocate assets to pay the caregiver, thereby avoiding having to spend down the assets to qualify for Medicaid. The care of course must be legitimate and the amount is taxable income to the caregiver.
5. Using Florida Homestead
Another great elder law asset protection option in Florida is to use funds that otherwise would need to be “spent down” and allocate them toward paying down mortgages and improving Florida homestead property. This is a common and solid option because the homestead is considered an exempt asset under the Florida Medicaid rules, meaning that its value doesn’t count when applying for Medicaid.
Is the symbiotic interdependent relationship between these different areas of estate planning beginning to unfold yet? I hope so, because this “synergy” is critical to your creating a complete estate plan for yourself and loved ones.
Steve Gibbs, Esq.