Basic Asset Protection, Medicaid Spend Down Strategy
When you’re planning your finances throughout your life the idea is to accumulate assets, so it can seem kind of strange when you find yourself in a situation when you have to reduce your assets. However, this is often the case when you are engaged in estate and incapacity planning.
One of the reasons why you may want to position assets outside of your own personal ownership is to protect them from claimants. People who are subject to legal actions, such as physicians who could be faced with malpractice suits and others who may have judgments against them need to find ways to protect their assets.
Depending on the specifics of the situation and the size, scope and nature of your resources there are a number of different financial instruments that can be used for asset protection. The simplest and most direct way to protect assets is to give them as a gift to a loved one or trusted friend. The recent passage of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 raised the lifetime gift tax exemption from $1 million to $5 million.
So using this exemption, you can give gifts totaling as much as $5 million throughout your lifetime completely free of taxation. Once you give these gifts the assets are no longer your property so they cannot be targeted by claimants against you.
In addition to using gift giving is a way to protect your assets, you can also implement this strategy as a way to “spend them down” as you prepare for the latter stages of your life when you may need to apply for Medicaid to cover long-term care costs. There are detailed Medicaid rules that are in place that must be followed to the letter, so the exact way that you go about gift giving in an effort to spend down is something that should be discussed with an experienced elder law attorney.
