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Estate Planning and Asset Protection Introduction

One area of personal finance which is often neglected until far too late is estate planning and asset protection. I recently ran into this first hand when visiting my mom and dad a few months ago. Both of them are well into their eighties and have reached a point where they are forgetting to pay bills, including insurance on their vehicle and residence (You’re probably thinking they shouldnt be driving, and I agree but that’s an entirely different story). This really came to the forefront when their phone service was cut off due to non-payment.

One of my goals when visiting them was too help them take a hold of their finances and set up on-line accounts as well as on-line payments. My parents are working class heroes, first generation immigrants who worked hard all their life. I never expected that they would be able to save any significant amount of money. Imagine my surprise when I found, while helping them organize their financial records, that they had accumulated a significant amount in various savings accounts.

This wasn’t a “fortune” but it was a significant enough amount that it should have been sheltered and protected from lawsuits and government requirements when seeking long term care for the elderly. This is especially true in light of the situation they were facing. My parents were rapidly approaching a state where long term care of some type would be required. This led me on a path of research on how to get them the care they required and what it meant to them in terms of preserving their assets.

What I found was disheartening. Medicare, the medical insurance for retirees, does not cover long term care, although in certain circumstances they do cover at home medical assistance. For long term care in an assisted living or full care facility medicaid is the program that will cover those expenses. Unfortunately, Medicaid requires that a person essentially be a pauper before they  will cover the neccesary costs. Worse, under current law they will look back for a period of five years to look for financial gifts that have been given out from a persons assets and apply the monetary value of those gifts to a penalty period that determines how long the applicant must pay out of pocket before Medicaid will kick in. To further complicate matters, the exact amount that is used to calculate the monthly penalty varies state by state, making estate planning infinitely more complex and very localized to the state you or your parents live in. The same state by state differences apply to protecting your assets should you be sued or reach a point where you have to file for bankruptcy protection.

This opened up the next avenue of research to find out exactly how to shelter my parents money and assets. This road led me down the path of learning about gifting, trusts, wills and various other methods used to protect assets. Although wills are important and should be the corenerstone of any estate planning strategy they are only the first step. Gifting of cash and other assets are one method we will discuss, the limits of now much can be gifted without tax ramifications as well as the intent of what the money is to be used for and what to do with that money are important considerations in your estate planning strategies. Trusts (irrevocable as well as living and revocable} can be an important part of a well established estate plan. Trusts are infinitely complex and carry ramifications beyond tax and Medicaid determinations. These are all complex and comprehensive topics which deserve well researched articles which will give you a good start in estate planning to fit you or your parents particular situation.

One quick comment, you may be wondering why bankruptcy protection is mentioned in a website dedicated to financial independence. Quite simply, I want to be as thorough as possible in the areas covered on this site. Protecting your assets is an important part of personal financial planning and as unfortunate as it may be, bankruptcy is an area that obviously has huge ramifications to a persons finance (no kidding right?). But there are areas and impacts of bankruptcy that many are not aware of until it’s too late, How much of your assets will you be allowed to keep? How much equity in your home are you allowed to have? these are just a few of the facts that anyone facing bankruptcy will face should they get to the point where filing for bankruptcy is the last option for them.
I decided to combine the introduction to Estate Planning and Asset Planning as there are many areas that overlap between the two topics. Many of the steps that you would take to protect your assets are similar, if not the same, to estate planning. Both of these are broad topics with many aspects that are specific to either asset planning or estate planning so you will see some articles that are specific to their appropriate category and some that will cover both.
One thing that I will empathize in regards to both estate planning and asset protection. Seek professional advice and guidance before you make take any actions with your financial strategy. The laws and regulations vary widely on a state by state basis and what makes perfect sense in on state may be a financial catastrophe in another.
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John Schmoll is a Dad, husband and veteran of the financial services industry. He's passionate about helping people learn from his mistakes so that they can live lives free from the shackles of debt and empowered to make their money work for them. You can check out his other sites: Frugal Rules, for ways to improve your financial literacy; and Sprout Wealth for tips on different ways to make more money. John has been featured on Forbes, Lifehacker, Yahoo Finance and US News & World Report and more. If you're wanting to grow your blog, check out my blog coaching services to see how I can help you take your site to the next level.

4 comments

  1. Thank You, keep checking back as there will be many more articles published!

  2. Great primer on such an important area. I have been an estate planning attorney for over 30 years and there is a lot to this area as your article points out. But there is a lot of other parts to this puzzle. Without spamming, I would recommend that any readers interested in the impact of the new tax act on estate planning should read my below cited article. Hope this is of service to you and your readers.
    Steven J Fromm recently posted…Estate Planning 2013: Now What? A Must Read For EveryoneMy Profile

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