The Family Health Trust | Supporting Parents Without Financial Complications

There are times when a parent or other family member has a need and has children with resources that could be used to assist, but an outright gift or transfer is not a suitable solution for one reason or another. Yet, the need is immediate. We especially think of health needs, but it could be other needs for support or even education.

On the receiving end, outright transfers of funds may be inappropriate because resources received the wrong way will disqualify the recipient from getting other benefits that they would otherwise be able to receive.

On the giving end, outright gifts may create tax issues for the donor; the gifts might exceed the annual exclusion from gift taxes (in 2019 that’s $15,000 per year per person). In addition, the giver may want to control the use of the funds, or any funds left over if they are not all spent on the health care need.

The Health Need 

For example, a child (or children) may have resources (their own money or money in a trust) that they would like to be able to apply to assist their parent who is aging and is in need of home care or nursing home care. The child is aware that giving the parent money outright would increase the parent’s resources and therefore likely disqualify the parent from receiving Medicaid. 

Meeting the Health Care Need

The children could assist the parents by helping to pay for long-term care insurance, which would ultimately defray a portion of the costs incurred for long-term care. Alternatively, the children could simply help fill the gap in their parents’ health care with direct gifts made towards any shortfall after mom or dad’s personal resources have been applied.

However, the children are also aware of their own tax and estate planning issues, such as gift taxes and the possible distorting effect that giving assets directly to the parent might have on where those gifts end up at death.

The Solution

The Family Health Trust™ allows the child to deposit their own resources to either a revocable or irrevocable trust for the benefit of the health of the parents (and for that matter for the child’s spouse, children, and even other collateral relatives). Once in this trust, the trustee has discretion to pay out for the health needs of the named relatives, and perhaps the trust is biased toward the oldest of these relatives.

The trustee can often be the child, although at times it is better to have a third-party serve as a trustee. Because this trust is set up by a third-party (not by the relative) and is not administered by any of the relatives themselves, the trust can pay out in a fashion that optimizes the availability and qualification for other benefits, such as Medicaid, for one or more of the trust beneficiaries.

If there is only one beneficiary with a specific need of disability, this trust is usually referred to as a supplemental needs trust. The Family Health Trust™ is designed to have a broader swath of beneficiaries among whom the benefit can be “sprayed and sprinkled”.

In cases where a child has a heartfelt desire to help but lacks the personal resources to do so, they might consider requesting a distribution from an existing trust created for their benefit by their parents years earlier, which could then partially or wholly be applied to the funding of a Family Health Trust™ as the child determines. This is more or less like taking an advance on an inheritance.

On the gift and estate tax side of things, suffice it to say that the tax consequences of funding a Family Health Trust™ can be managed. The child who donates funds into the Family Health Trust™, even if the trust is irrevocable, is not necessarily making a “completed” gift and so no tax reporting of the transfer is necessary.

The Family Health Trust™ ultimately will distribute to whatever beneficiaries the creator of the trust has decided upon. It is even possible that children can combine resources and create the Family Health Trust™ together. Either way, benefits may be provided in a manner that will not disqualify the beneficiary (relative) from receiving other benefits and will produce the end result that is desired for the child or children involved and their heirs.

To find out how the Family Health Trust™ can help you and your loved ones, schedule up a complimentary consultation with us.