Estate Planning v. Asset Protection

Feb 13, 2017

Our clients sometimes get confused when we make a distinction between estate planning and asset protection. Of course, the confusion is not entirely misplaced because estate planning often involves strategies to protect assets in the face of unfortunate life events, such as a divorce or a lawsuit. When we refer to asset protection as a separate category from estate planning, however, we are referring to protecting assets in the face of the unfortunate life event of a loved one needing nursing home care. This article will attempt to explain why we make such a distinction.

First of all, it’s important to understand how costly nursing home care can be. A survey done in 2015 found that the median daily rate for a private room in a nursing home in Massachusetts was $382, which translates to a monthly cost of $11,460, or $137,520 per year. How many years does it take the average person to save $137,520? As you can see, life savings can be spent very quickly should someone unfortunately need nursing home care. So in comes the desire to protect assets, which we, fittingly, refer to as asset protection.

Asset protection can take many forms, and will vary depending on when the planning takes place. If planning is done with the expectation that nursing home care will not be needed for a number of years, if at all, assets can be transferred to a special kind of trust or, with great caution, to children. If, on the other hand, nursing home care is possible or even imminent, strategies are very different, including the transfer of assets to a spouse or possibly the use of an immediate annuity. Whatever the timeframe, the goal of asset protection is always the same: preventing the loss of hard-earned assets.

Estate planning, on the other hand, may have many different goals. With large estates, there would be planning to minimize estate tax exposure in Massachusetts or if the estate exceeds the federal exemption amount. There may also be strategies employed to lower an estate value using gifting or to cover tax exposure with the use of life insurance. Smaller estates, while maybe not exposed to estate tax liability, should still plan with other goals in mind, such as avoiding exposure to probate or making sure assets pass exactly as desired.

Additionally, estate planning generally involves the use of certain documents, such as wills, trusts, and powers of attorney, to achieve desired goals. By placing assets in a trust, distributions can be made over a number of years or when a beneficiary reaches a certain age. A will, which must go through probate, can ensure court oversight in the event a family dispute is anticipated. Powers of attorney can allow third parties to act on someone’s behalf in the case of incapacity, which otherwise could only be done through court.

Thus, estate planning, while often employing strategies to protect assets, is not just focused on asset protection, whereas asset protection has a singular focus. Of course, it’s important to consult with an experienced attorney when it comes to either asset protection or estate planning.

Attorney Michael Coleman is a member of the American Academy of Estate Planning Attorneys. Lantz Law, Inc. has served the communities of Southcoast, South Shore, Cape Cod and the Islands since 1969.