Don’t Fumble At The Goal Line

No Razorback fan over the age of fifteen has forgotten the infamous fumble by Clint Stoerner in 1998. The Hogs were ranked number ten late in the season, and they were facing the top ranked Tennessee Volunteers in a huge SEC matchup. With 1:43 left in the game, Stoerner and the Razorbacks led 24-22, and the undefeated Hogs needed only one more first down to remain unbeaten and enter the national championship picture.  

The Hogs didn’t get that first down. Instead, Stoerner stumbled, tripping on one of his own teammates. He put the ball on the ground for a fumble that he and the rest of the State would remember for years to come. Tennessee recovered the fumble, scored a go-ahead touchdown, and went on to win the game and the national championship. 

Up to that point, the Hogs had played a great game. They had a good game plan, and they followed that plan well. But no one remembers anything other than the disappointing finish. If we’re not careful, life can play out the same way. Many of us will work hard and save all our lives. We’ll put plans and strategies in place, and we’ll follow through even when it requires sacrifices. But all that hard work and all that saving can be wasted as a result of mistakes many people make in the final years of their life. 

One of the worst mistakes I see week-in and week-out is people’s believing that their trusts will shelter their assets if they need long-term care. Although it is possible to create a trust that can serve as an asset shelter, 99% of the trusts I review for clients are not asset shelter trusts, and they do nothing to shield a person’s life savings from the cost of long-term care. 

Realizing this mistake too late can be devastating, especially for a family who thought they had properly planned ahead for the uncertainties that come with getting older. Do not assume that your trust, if you have one, will be of any help in applying for assistance in covering the costs of long-term care. If you are concerned about the costs of long-term care, learn about asset shelter trusts and how they differ from the standard trusts most people have. 

Another mistake I see regularly involves late-in-life gifting. Many parents will transfer assets to their children as they get older thinking that is the best way to protect those assets. However, many don’t realize that some government benefits have look-back periods, and they penalize the transfer of those assets. For example, Medicaid has a five-year look-back rule that allows the State to impose a one-month penalty, or waiting period, for every $6,000 in assets transferred within that five year period. Lifetime transfers can also have adverse capital gains tax consequences.  

For example, if a child receives from his parent a home as a gift, then the child sells that home, he will pay capital gains taxes on the difference between the sales price and the purchase price paid by the parent, probably decades ago. On the other hand, if the child inherits the house through a will or trust, he will receive a stepped up tax basis, meaning he will only pay taxes on the difference between the sales price and the value as of the date of his parent’s death. Think twice about late-in-life gifting.

What these two mistakes have in common is that neither involves individuals who are failing to plan ahead. Instead, they both involve people trying to plan for the future, but going about it in the wrong way. There are ways to protect your assets late in life for yourself and for future generations, but those ways are not usually the methods discussed at coffee shops and beauty salons. Navigating the complex area of long-term care requires specialized advice from experienced individuals who have been there before.

In football, sometime fumbles happen. All the training in the world can’t prevent them all.  But in life, the key is information—fumbles can be avoided. Don’t allow avoidable mistakes to ruin years of planning and sacrifice. Set up a strategy session, which we offer at no charge, to make sure you don’t fumble at the goal line. ν