The phrase “asset protection planning” means a variety of things depending on who is asking for protection and the type of professional who hears the question. For example, a financial advisor whose client asks about asset protection will likely want to discuss investment strategy, diversification, “safe” investments, and rates of return, with the aim of protecting a client’s wealth from economic downturns. A life insurance expert may think of various life insurance policies that can protect a family from the impact of an untimely death or annuities that can be used to fund business or ensure estate planning objectives. An estate planning attorney may consider domestic asset protection trusts to protect a client against potential future creditors or ways to reduce the impact of state and federal death taxes.
For elder law attorneys, asset protection typically means ways in which an individual or a couple can protect their assets from the extraordinary cost of care for a chronic illness. For some clients, this means discussing financial planning and setting financial goals, for others it is discussing Medicare Part D plans Medicare supplement plans, for others, this means evaluating health and long-term care insurance. For many, it means considering how to pay for long-term custodial care either with or without some of these tools. These considerations are complex and stressful for all families; however, for blended families, the considerations and stress are compounded. In the blended family context, many of the elder law attorney’s common asset protection planning techniques have the potential to cause disruption and damage to delicate family relationships if not employed with care.
Blended families consist of a husband and wife or spouses of the same sex and their children from previous marriages and/or other unions as well as children from their common union. In the United States, more than 50 percent of all families are blended families. Since the majority of American families are blended families, a large percentage of individuals needing long-term custodial care are members of a blended family.
Blended families provide unique and challenging asset protection planning opportunities. Families may be united in some ways but are often divided in others. Before even considering how to pay for long-term care, it is easy to illustrate the complexity of this planning by considering the spouses’ estate plans. The distribution of assets after death of the first spouse to die in a blended family often leads to conflict.
Some issues that can arise:
- One spouse may have come into the marriage with substantially more assets than the other;
- The spouses may differ on how the combined assets are distributed after death;
- One spouse may have long term care insurance to cover custodial care costs and the other choose not to or could not obtain this type of insurance;
- There is or is not a pre-nuptial agreement that addresses payment for long term care costs.
- Relationships with stepchildren may or may not be great and the stepchildren may have access to joint assets through a power of attorney.
Those are practical considerations but there are also legal issues. Unless there is a binding trust instrument or a pre or post-nuptial agreement clearly defining the couple’s position on how assets are utilized, the surviving spouse can change his or her estate plan after the first spouse dies and ignore any verbal agreement made.
There are other relevant issues. Under Medicaid law restructuring the ownership of assets owned by a married couple can be used to access Medicaid earlier for a spouse in need of a nursing home level (but still custodial) of care. Further, if the healthy spouse’s shelter costs are high and his or her income is low, the law allows the transfer of income to the healthy spouse to pay for their shelter costs. This may or may not be consistent with the couple’s previous arrangement as far as paying for care.
This restructuring of assets can benefit the couple in the short run allowing the sick spouse to access needed care while preserving assets for the healthy spouse but it could frustrate an estate plan where other family members/stakeholders are involved. There is also the issue of who will be making the decisions for care and what are their interests. Do the children agree with the spouse about the appropriate level of care? Do the care choices potentially affect the other spouse in a negative way. Blended families present unique and novel challenges.
What does a blended couple do? Have a pre or post-nuptial agreement? Create a trust? Get divorced when one spouse gets ill? Who should be involved in the decision making. Should it be the couple alone or include the children? This often depends on how long the couple has been married and what their agreement coming into the marriage was. It also has to do with how cognitively intact each spouse is and how much each spouse may or may not need an advocate.
This brief discussion in no way presents are addresses all of the issues. What is does is suggest that estate and eldercare planning is complex and that when a blended family is involved there needs to be a more nuanced discussion of the issues because there are more of them.
About The Author
by Main Line Today
Robert M. Slutsky has practiced Elder Law since 1992 and was one of the area’s first elder law attorney. Mr. Slutsky advises clients on Medicaid and Asset Protection Planning, Guardianships, Wills, Trusts, Powers of Attorney, Estate Administration, Special Needs Planning and General Estate Planning. He has represented for profit and non-profit elder care providers and the Pennsylvania Department of Aging. Mr. Slutsky has been the solicitor for the Montgomery County Office of Aging and Adult Services, the Area Agency on Aging for Montgomery County, for over 15 years.