This is a question that I receive quite frequently from financial professionals with whom we work very closely.  The typical answer is, they would not.  However, there are times when this makes sense, as seen in a recent case where the financial advisor, the accountant and I all agreed that it made sense to do so in light of the individual’s circumstances.

A client was referred to us who had worked with other attorneys and was not pleased with the results, and a friend of theirs mentioned our workshops.  I began by asking the family the simple question of what brought them in to us today and what were they hoping to accomplish?  As I listened, it became apparent that the only reason that the husband and wife were in my office was to make sure that their assets were protected for their children.

The husband explained that both his and his wife’s parents ended their lives in nursing homes and all totaled, the bills were about $750,000.  In both family situations, the parents exhausted their assets and ended up on Medicaid, and there were no assets left to pass on to the children.  The husband was adamant and said repeatedly that this will not happen in my situation and I want a solution.  As we dove into their situation, it became apparent to me that there was approximately $500,000 of assets that were funded in retirement accounts such as 401(k)s, IRAs and 403(b)s. 

At the conclusion of the meeting, I explained to the client that generally we never liquidate retirement accounts during a person’s lifetime, because not only will it trigger significant tax consequences but could also have unintended consequences such as Medicare premiums and other such things.  The client would not accept that as an answer and did not believe that leaving $500,000 exposed was the right decision.  After three meetings with the advisor and the accountant and me, we were able to come up with a plan that was satisfactory to everyone, and with the clients in their early 60s, time was definitely on our side. 

In this situation, we ended up liquidating his retirement account over five years at $100,000 a year, and took the remainder of the assets after taxes and funded them in an Asset Protection Trust.  The downside of this plan was that in year five when he liquidated the last $100,000, in order to have it fully protected, they had to stay out of a nursing home for an additional five years, which would be a total of 10 years.  In light of their age and circumstances, it was certainly a risk that we were willing to take.  Ultimately, this compromise allowed the advisor and the accountant to also be very comfortable that it would accomplish their objective, but at the same time, not exacerbate any unintended consequences such as taxes and surcharges and premiums, etc. 

Although the client wanted the assets to be protected immediately, he understood that at best it would have to be done over five years, as liquidating 100% of those assets in one year would trigger much higher income tax rates, and was definitely not an avenue that any of us really could support.  I was very pleased that we were able to accomplish the client’s objective in this case, while at the same time making the financial professional and accountant happy. 

The father then called a family meeting and we had a phone conversation with the entire family to explain to all of the kids why we did what we did and what the rationale was behind the plan.  Everybody was on board and was excited that we were able to come to a compromise that pleased everybody.
Estate planning and elder law is absolutely not a one-size-fits-all approach.  Every case is very different, and, done properly, works best with a team approach.  We relish working with financial professionals and accountants to accomplish the clients’ goals in a way that is not only acceptable to them, but also to their families. 

Thank you to this family and the many more whom we have helped over the years to accomplish their estate planning goals.  

If you want to get the process started on your estate planning or asset protection join us for an upcoming workshop.  Just click here to RSVP and grab your seat today.

Jeffrey Bellomo