family protection trust

The Pros and Cons of a Family Protection Trust

A Family Protection Trust (FPT) is a legal method allowing you to segregate your assets from taxation, cost of care fees, and other risks to your estate. Also known as an asset protection trust, inheritance tax protection trust, or home protection trust, a family protection trust protects family wealth from outside risks.  The beneficiaries of a family trust are most generally related such as children, grandchildren, or other loved ones.  The assets funding the trust may include family-owned businesses, homes, farms, life insurance, and “rainy day” savings.   as well as other family trusts.  

*This blog is for educational purposes only and should not be considered legal advice. The use of the Paths Law Firm website does not constitute a client-lawyer relationship.

In simple terms, a family protection trust can be thought of as a safety deposit box holding ownership of a family’s property and assets.  This includes things such as a family business, a home, life insurance, stocks, savings, bonds, other trusts, and any other assets you want to keep safe.  While the assets are in a family trust, they can be accessed if the trust is designed appropriately.  This allows assets to be added to the trust, assets in the trust can be sold, and the trustee can even borrow against assets in the trust.  Beneficiaries can even receive the assets anytime depending on the family’s desires.

safety deposit box

What is the Purpose of a Family Protection Trust?

A Family Trust is an inter vivos discretionary trust.  This means that the trust is established by an individual during their life and may be referred to as a living trust.  The trust is best for managing select assets to support the designated beneficiaries.  The primary purpose of a family protection trust is to protect the chosen assets and property placed in the trust.  The individuals named as the trustees hold the assets on behalf of the beneficiaries designated on the trust.  All assets, including money and property, placed in the trust are segregated from your estate and protected from many of the risks possibly affecting the estate.

Should Everyone Have a Family Protection Trust?

There are pros and cons of having a Family protection trust.  Whether or not having this type of trust is good for you and your family depends on the type of assets making up the estate and the family dynamics. 

The funds in an FPT are kept in an account separate from an individual’s name or estate.  Because of this separation, the trust may need to file a tax return.  The tax aspects of these trusts can be better explained by a tax professional.  Most attorneys who help draft these types of trusts should make it easy to understand the tax aspects.  The protections of the trust are only valid if the family follows the trust rules.  The assets in the trust should be spent last in order for the trust to provide the most benefit.  If the trust funds are not needed immediately, the trust can provide considerable protection.  Before setting up a Family Protection Trust it is important to get legal counsel to discuss the pros and cons as it relates to your specific situation. 

family protection trust

What Events or Factors Can Cause Loss to an Estate?

There are many factors impacting the assets of an individual’s estate causing a reduction in the money and property meant to be passed on to family members and loved ones including:

  • Taxes, specifically inheritance tax.
  • Cost of care for long-term-nursing home services.
  • Claims made against an estate by a family member left out of a will.
  • Disinheritance, whereupon death, your spouse remarries and passes your property to their new spouse and their family, excluding your children.
  • Costs Associated with Probate.
  • If assets are left to your children as a gift, the funds can be exposed to their divorce, lawsuits, or bankruptcy.

How Can I Protect My Estate to Reduce Risks?

Reducing the risks to your estate allows you to have more available later for care or to pass on more to your family.  Setting up a family protection trust can help mitigate risks.  This is a good option for individuals wanting to ensure their spouse can continue living in their family home, with the knowledge the estate will at some point, be passed to their children or other beneficiaries of choice.  There are many different types of trusts available to protect your assets however, the best trust depends on your estate.  For information on estate planning and asset protection options, contact Paths Elder Law to schedule a consultation.

risk mitigation

What Are the Pros and Cons of a Family Protection Trust?

Setting up a family trust is a difficult decision as there are many things to consider.  Part of the decision should weigh the pros and cons and how they will impact the goals for your estate. 

Pros of a Family Protection Trust

A family protection trust has many benefits to protect and manage assets and how those assets are inherited.  The following are some of the pros of setting up a family trust:

  • Ensures assets are kept in the family – When a child dies, the funds in a family protection trust will stay in the family for the benefit of grandchildren. This is an important consideration as it protects children in the event a surviving spouse decides to remarry.
  • Provides management of assets (protecting vulnerable family members) – A family trust can help to protect a vulnerable beneficiary who makes bad spending decisions or is at risk of another person encouraging them to make bad spending decisions.  Some individuals can manage finances better than others and a family protection trust can be used to ensure the assets left to them are well-managed for their benefit.
  • Bankruptcy protection – If a son or daughter has financial issues and needs to file bankruptcy, the family protection trust should be designed so assets titled in the trust are protected.  This is because the assets of the trust do not legally belong to the beneficiary.  They can be used for the beneficiary, but the terms of the trust and the discretion of the trustee places needed barriers in the way from being considered as owned by the beneficiary.  The funds are still available to them, but creditors are not able to make a claim against the trust.
double taxation protection
  • Divorce protection – For similar reasons as explained above, funds in a family protection trust are more protected in the event of divorce than funds in a beneficiary’s name. Whether or not the protection is absolute will depend on the state laws and how funds are used; however, funds in a family trust are more likely to be excluded in a divorce settlement.
  • Lawsuit protection – If the beneficiary of a family trust is sued, funds in the trust should be protected from judgments.
  • Medicaid benefits – Although a family protection trust is different from a special needs trust, it can be set up so funds in the trust are not required to be spent down in the event of disability and the need for Medicaid benefits. This can also apply when a child becomes elderly and needs Medicaid coverage for long-term care nursing home benefits.  This can even be used now for older parents.
  • Avoids double taxation – Funds in a family protection trust are not included in the taxable estate of a child. While this may not apply for most people in relation to the 2021 federal estate tax threshold, which is currently set at $11.7 million, the state in which you reside may have a lower threshold than the federal threshold.  This means many estates would be subject to additional taxation.
  • Flexibility to adjust for changes in the law – Modern trust deeds generally have limitations on rights of variations when it comes to dealing with changes in the law.
  • Confidentiality – Family trusts are confidential because they are not publicly registered.

Cons of a Family Protection Trust

Family protection trusts have many pros, and some cons should be considered.  The following are some of the cons of setting up a family protection trust:

  • Cost – The fees associated with preparing a plan including a family protection trust is usually more than a plan without one.  It’s not common and many attorneys try to avoid the need for a professional trustee, but if one is appointed, there are fees associated with using them.  If the family protection trust is being used for an older parent, hopefully, there are great individual choices available to use as the trustee.
  • Tax returns – Once a family protection trust is funded, the trust may need to file its tax returns. Typically, the trust does not pay taxes and the returns are for reporting purposes only.  Designed properly, the person with the lowest tax base will be recognizing the trust income on their tax returns.  The trust funds can be used to help pay any additional taxes.
  • Following the rules – While a professional trustee may be most familiar with a fiduciary’s duties, most individuals choose to name their children as the trustees of their trusts. This does save on the cost of a professional trustee.  With proper counsel and careful review of the trust, there is little risk a child may run afoul of their duties. 
filing tax returns

Be Aware of the Medicaid 5-Year Look Back Period

One of the benefits, as mentioned above, of a Family Protection Trust, is protection of assets in the event a beneficiary needs Medicaid for long-term care or nursing home expenses.  It is important to have an understanding of the rules associated with Medicaid’s 5-year look back period in regard to this type of trust.  Simply stated, Medicaid can look back 5 years in their financial analysis to make a determination of whether an individual qualifies for nursing-home Medicaid benefits

The law allowing a 5-year look back also required the transfer was for the purpose of qualifying for Medicaid.  If the trust is funded during a period with no or minimal diagnosis that should lead to the nursing home, a strong argument may be only because of an intervening event (such as a car accident) are they in the nursing home within the 5 years.  It is more certain the plan will work if you have the 5 years, but if not, all is not lost.

If we only consider the 5 years and not the exceptions, this means for the trust plan to work best, it should be set up and funded at least 5 years before Medicaid is needed.  After the 5-year period has passed, the assets in the trust are no longer countable assets.  In fact, if done correctly, Medicaid legally does not even know any of the transfers occurred. 

Should someone need nursing home care within the 5 years, this trust also provides a deadline for privately paying for long-term care costs.  It is important Medicaid is not requested within the 5 years as a penalty period will be assessed and the penalty period is not limited by the 5 years.  The length of time for the penalty period is based on the amount of assets transferred within the 5 years.

family protection rules

Final Thoughts

While the decision to create a Family Protection Trust is different for each person, this type of trust helps safeguard assets and protect legacies from unexpected circumstances that may occur in the future.  At Paths Elder Law we understand the importance of protecting your future and the future of your family for generations to come.  We have close to 30 years of experience setting up wills and trusts, asset protection, nursing home Medicaid,  VA and other benefits, probate, and guardianship.

We have been extremely successful in helping our clients protect their legacy and mitigating issues related to the cost of care, and more.  If you would like more information or resources on how we can help, contact Paths Elder Law.  Bringing you one step closer to the peace of mind you want and need.

Educational Seminar at Paths Law Firm

Paths Law Firm provides a Free Educational Elder Law Seminar every month to help you plan for your future.

Administrative Assistant

Ryan D. Foley

Ryan Foley at Paths Law

Administrative Assistant

Ryan D. Foley

Ryan graduated from the UMKC School of Law in 2018 and passed the Missouri Bar that year. Prior to law school, Ryan attended the University of Missouri – Columbia where he attained a degree in Business. He is a Kansas City native, growing up in the Northland where he achieved his Eagle Scout rank by doing a project for his high school. During his time in law school, Ryan was introduced to the practice area of Elder Law by one of his professors and has been

Ryan enjoys working with and educating clients to provide advocacy and support during the unfamiliar and often overwhelming probate process. Ryan understands the challenges faced by individuals when faced by the uncertainty and complexity of government systems or even handling a Trust during a time of grief, and he strives to make the process as easy as possible.

Administrative Assistant

Makaylee A. Morelli

administrative assistant at Paths Law

Administrative Assistant

Makaylee A. Morelli

Makaylee is currently working on her bachelor’s in political science and hopes to soon start law school as an aspiring attorney. In her free time, she loves to spend time with her friends and family but most importantly her dogs Taffyta, Tallulah Belle, and Harry. Their favorite thing to do is go on coffee dates and get pup cups.

Attorney

Kathleen E. Overton

Kathleen Overton, attorney at Paths Law

Attorney

Kathleen E. Overton

After starting her career as a disability attorney, Kathleen transitioned into estate planning at a mid-sized regional law firm. Kathleen joined Paths Law Firm in 2021 when she decided to return to a boutique law firm that provides excellent service and quality to clients. Because of her background as a disability attorney, she brings a thorough understanding of public benefits to each client meeting. At Paths Law FIrm, Kathleen focuses on traditional estate planning and business entity formation, providing tailored advice unique to each client’s situation.

Public Benefits Assistant

Tena K. Dooley

Public Benefits Assistant

Amanda D. Martin

I have my Associates in Applied Science and have over 20 years of office management experience. I have two daughters and one grandson.

During my time away from the office I enjoy spending time with my family.  I enjoy almost everything outdoors and my hobbies include fishing and gardening.

PARALEGAL

Sydney R. Morris

Paths Law elder law in Kansas City

PARALEGAL

Sydney

Sydney is currently enrolled at the University of Missouri-Kansas City pursuing an accounting degree and plans to later attend law school.

In her free time, Sydney enjoys spending time with her nephews and volunteering at her local church.

 

CLIENT SERVICES MANAGER

Christy L. Phillips

client service manager at Paths Law

CLIENT SERVICES MANAGER

Christy L. Phillips

Phone: 816-640-8635
Email: [email protected]

Christy has 3 years of experience in Elder Law working for seniors and their families as a Benefits Coordinator processing Medicaid and VA applications. Prior to joining Paths Law Firm Christy worked in the finance industry for over 10 years.

 

Christy’s experience in the finance industry has been extremely beneficial to her role as Benefits Coordinator. There have been many influences that went into her decision to select the field of Elder Law. Christy has a special place in her heart for the elderly and attributes this to her relationship with her grandparents.

When asked why she loves what she does, Christy said that at Paths Elder law, she gets the opportunity to help clients in more ways than one. Her favorite part of her job is getting clients approved for Medicaid or VA benefits as it is a huge relief for them and their loved ones.

Christy was raised in Ogden, Utah, and moved to Independence, MO, when she was ten years old. She has two children that keep her busy and fill her life with joy! Christy’s daughter cheers for Avila University, and her son plays competitive baseball for the Bucks and races BMX locally for the Motorcycle Closeout Team.

When Christy is not working, she enjoys crafting and making homemade gifts for her loved ones and raising her kids to be healthy, happy, and positive humans.

 

Practice Areas

  • Medicaid Benefits
  • VA Benefits

 

Professionalc Memberships and Affiliations

  • Missouri Notary

FINANCIAL MANAGER

René A. Fracassa

Rene A. Fracassa, Paths Law

FINANCIAL MANAGER

René

René has worked along side Rusty for 35 years. Not only is she part of the Paths team, she is also his wife. René spends her time working with the accountant to keep all of the finances in order, as well as general office management.

In addition to helping run the office, she helps manage the family and grandkids, tries to keep everyone fed, and has a passion to teach Bible Studies. Her former career in Event Planning trained her to juggle all the activity. She understands Rusty’s passion to serve people from the first mention of law school. It is a great pleasure for her to be an important part of every area of his life.

 

MARKETING MANAGER

Hilary R. Tichota

Hillary at Paths Law

MARKETING MANAGER

Hilary

Hilary plays a vital role in the daily operations of the office. In addition to her regular office duties, Hilary has a heart of gold.

For more than 5 years, Hilary has operated the front desk at Paths, running the office and catering to clients. Hilary recently moved into the role of Community Relations Coordinator. She has a passion for people and a focus to share our business practices with the community’s seniors, businesses, and clients. She especially has a heart for seniors, showing they are loved through her visits, treats, the “Pen to Pal” program, and volunteering services at various senior living communities. She is a wonderful wife and mother of two. Most activities with seniors involve her great talent for any type of craft.

 

SR. PARALEGAL & OPERATIONS MANAGER

Jennifer A. Bronson

Jennifer, senior paralegal

SR. PARALEGAL & OPERATIONS MANAGER

Jennifer

Jennifer has been in the legal field for over 25 years and considers Paths her second home.

When she’s not running the office or working for our clients, she’s spending time with her first passion – her children.

ATTORNEY

Russell A. Fracassa (Rusty)

attorney at Paths Law elder law

ATTORNEY

Russell A. Fracassa (Rusty)

Phone: 816-640-8635

When asked what he wants to do, his reply was “I just want to sit at the kitchen table and work directly with people.” Rusty enjoys working with clients providing experienced advocacy and supporting them through their unfamiliar and overwhelming situations. Due to all the challenges faced by seniors, it is essential to work with an experienced elder law attorney who has expertise in the law, issues, and concerns affecting seniors and their families.

Rusty brings nearly 30 years legal experience and expertise working for seniors and their families as an elder law attorney in Kansas City and surrounding. Prior to law school, Rusty was a practicing accountant. This provides invaluable experience in his current practice of law. Rusty decided to put his focus on helping the elderly, vulnerable adults, and their families navigate challenging life, end of life, and death events.

Rusty understands the challenges faced by individuals whose capacity is declining and how upsetting the loss of a loved one can be. He understands he may not be able to eliminate his client’s grief from loss, but he strives to provide clients with peace of mind. Rusty works directly with client’s long term care issues, including Medicaid, Veteran’s Benefits, Estate Planning, Asset Protection, and Special Needs Planning.

In 2010, Rusty’s faith and love led him and part of his family to China as Christian missionaries. He and his wife, went permanently, but ended up dedicating 3 years to that ministry. They returned to Missouri to help with grandchildren after a family tragedy and later began anew with Paths Elder Law. The goal is providing compassionate care through legal advocacy.

When Rusty is not practicing law, he enjoys spending time with his family, grandchildren, and excessive eating at local restaurants.

 

Practice Areas

 

  • Wills and Trusts
  • Estate Planning
  • Asset Protection
  • Medicaid Benefits
  • VA Benefits
  • Probate
  • Guardianship and Conservatorships
  • Education

 

BSBA and Master’s in Accounting, Master’s in Inter-Cultural Studies, and Doctorate in Juris Prudence

  • Rockhurst University
  • Liberty University
  • University of Missouri – Kansas City


Admissions to Practice

  • Missouri


Professional Memberships and Affiliations

  • State Bar of Missouri
  • National Academy of Elder Law Attorneys (long-time Member)
  • Elder Counsel (Charter and Ongoing Member)
  • Missouri Association of Trial Attorneys (Past Member)
  • Kansas City Metropolitan Bar Association
  • Missouri State Bar Committees – Elder Law, Estate Planning, Probate