You have spent the majority of your adult life carefully managing your money. You’ve followed savings guidelines like maxing out your 401K each year and paying into savings each month to ensure you have a rainy day fund. You’ve purchased a home and accelerated your mortgage payments so you have significant equity.
You have invested in smart life insurance. You may have even acquired additional assets like commercial real estate and other investment portfolios. You have engaged with a financial planner like Summitry to model your options. You are confident you have architected your finances so your family is financially stable and will remain so into the future.
Large Medical Bill Risk
A reality in the United States is that the healthcare system is a for-profit enterprise, and that brings with it certain risks with respect to severe or chronic illnesses. Costs for emergency surgeries without insurance can run into the hundreds of thousands of dollars, and that is for one procedure. Facing a severe prognosis like cancer or a chronic prognosis like Multiple Sclerosis or Parkinson’s can put a person’s entire life’s savings at risk.
Even with insurance, out-of-pocket costs for medical treatment for severe or chronic conditions can drain monies it took decades to save and cause you to convert assets to cash to cover medical bills. If you feel you are at risk for significant health challenges, there is a way to protect your assets from being eaten away by medical bills.
A trust is a separate legal entity you can set up to manage your assets. There are two main types of trusts, revocable and irrevocable. A revocable trust, also known as a living trust, can be revised with regard to terms like beneficiaries or asset management stipulations at any time. A revocable trust, however, since the owner retains a high level of control over it, does not protect the trust’s assets from creditors nor provide any tax shields.
To protect your assets from the risk of massive medical bills, you should explore an irrevocable trust. An irrevocable trust is exceptionally stringent, and changes usually cannot be made to the trust after it is signed.
Transferring assets into an irrevocable trust removes the assets from the benefactor’s taxable estate, so there are generally significant tax benefits to irrevocable trusts. They also protect the assets within the trust from creditors. The cost of moving all or most of your assets into an irrevocable trust, however, is that you lose all rights of ownership to those assets as well as most if not all control.
Ensuring your and your family’s current and ongoing financial security is one of the most important things you can do, but it isn’t easy. Exploring non-traditional avenues like irrevocable trusts to shield your hard-gained assets from the risk of significant and unplanned bills like those generated from severe or chronic medical conditions is one of the things you can do to protect your life’s work and ensure that you and your family remain financially stable in the short- and long-term.