Advanced planning to avoid crippling long term care costs and Pennsylvania estate recovery is an attractive option for many Pennsylvania residents. Planning ahead is usually preferable to the crisis planning that elder law attorney’s do to help clients preserve assets.
But not everyone knows that options exist to eliminate some or most of the private spend-down that takes place when you enter an assisted living community or skilled nursing facility. Unless a client actively searches for answers, it is not uncommon to believe that depleting all of your net worth on medical expenses is unavoidable. Even when a client finds answers, those explanations often seem contradictory or omit crucial details.
Even families that discover alternatives to private paying exist, often find these solutions years after the ideal window for advanced planning has come and gone.
Generally, advanced Medicaid and Aid and Attendance planning should be executed when you are healthy and still relatively young. Depending on the person and their health, advanced planning can be completed up to 15 years after retirement age. While current health doesn’t guarantee future health, irrevocable trust planning for a Pennsylvania resident between the ages of 60 and 80 can often make sense.
Sometimes, however, an older or less healthy family desires a Pennsylvania irrevocable trust to protect assets from possible nursing home and assisted living expenses. Can trust planning still be utilized to protect the home and other assets?
The answer, thankfully, is yes.
With an irrevocable trust designed to avoid the Pennsylvania Medicaid look-back period, the danger is that the grantor of an irrevocable trust will require a skilled nursing facility before the 60 month look back period has passed. The question then becomes: can the irrevocable trust be terminated so that the gift (the grantor’s transfer to the irrevocable trust) can be cured and crisis Medicaid planning undertaken?
Despite the name – irrevocable – this type of trust can be terminated as provided by Pennsylvania law. While the ability to revoke an irrevocable trust may seem contradictory, the Pennsylvania legislature understood that good reasons exist to amend or terminate an irrevocable trust.
Revoking An Irrevocable Trust In Pennsylvania
Importantly, the irrevocable trust must be a noncharitable trust. Assuming the Pennsylvania irrevocable trust is noncharitable, then it can be terminated when:
1) The settlor and all beneficiaries agree. Importantly, the trust can be terminated even when doing so would be inconsistent with a material purpose of the trust. If the settlor in incapacitated, a guardian or power of attorney can consent for the grantor.
2) All the beneficiaries agree and only if the court concludes that the modification is not inconsistent with a material purpose of the trust. In this instance, the grantor is uninvolved.
3) Not all beneficiaries agree but the court is satisfied that: a) if all the beneficiaries had consented, the trust could have been modified or terminated and b) the interests of a beneficiary who does not consent will be adequately protected.
While revoking an irrevocable trust in Pennsylvania is possible under the law, the complexity and possible complications of doing so may be undesirable. In a crisis planning situation, time is valuable. Every month that passes without a plan can mean many thousands of dollars needlessly spent on care at a nursing home.
Alternative To Formally Revoking An Irrevocable Trust
Sometimes terminating an irrevocable trust using the examples provided above is not possible or simply undesirable. Fortunately, Pennsylvania residents can “collapse” an irrevocable trust when the grantor requires skilled nursing care before the Pennsylvania Medicaid 60 month look-back period has elapsed. Collapsing a trust means that the assets owned by the irrevocable trust are distributed outside the trust.
In order to collapse an irrevocable trust, the trust should be drafted so that the trustee can distribute assets owned by the trust. Oftentimes, real property will have been re-titled to the trust. The trustee must have the power to sell the real property. The power to sell real property is beneficial in crisis Medicaid planning for a single person.
Careful drafting should be done by an elder law attorney familiar with Pennsylvania Medicaid. Proper drafting of an irrevocable trust can mean the difference between accomplishing the goals of the grantor and losing tens if not hundreds of thousands of dollars on skilled nursing or assisted living expenses.
This is not legal advice. Please do not undertake any of the strategies discussed in this article without speaking with a qualified elder law attorney.