In Part 3 of my Medicaid Planning Series we are going to discuss the use of Trusts with Medicaid Planning.

If you haven’t read Part 1 or Part 2 of this series – I recommend that you read them now – as they give a general overview of Medicaid Planning Basics and Exempt Assets.  These two articles provide an overview of Medicaid planning rules and provide a foundation for more advanced Medicaid Planning topics such as this one.  You can access Part I of our series by Clicking Here and Part II of our series by Clicking Here.

Disclosure:  Planning for Medicaid is very fact specific.  You should go to an estate planning attorney that is experienced in Medicaid planning for more guidance as to your or your family’s particular situation.  This article is for informational purposes only. With that being said, there are some Advanced Medicaid Planning Topics and Tips.

Using an Irrevocable Trust for Medicaid Planning:

There is a general misconception that someone can transfer all of their assets out of their name and into a “Medicaid Trust” and those assets would be protected assets from Medicaid.  Irrevocable Trusts can technically be used as part of Medicaid planning – but when it is explained how they are used – and the limitations and restrictions on the assets placed into those trusts – most people decide not to use an Irrevocable Trust as a Medicaid planning option.

We must remember the 60 month Rule.  When someone applies for Medicaid they have to disclose all transfers of assets out of their estate during the previous 60 months.  For example – if someone wants to give $100,000 to their children so it won’t be considered an asset for Medicaid purposes – that transfer must be done at least 60 months before Medicaid is applied for.  If the transfer occurs during this 60-month “look-back” period – then Medicaid will assess a penalty which will delay your eligibility to receive Medicaid benefits.  (See Part I and II for an explanation of this look-back penalty)

If someone wants to transfer assets into a Trust to protect those funds from Medicaid, it can be done, but you must follow these rules:

  • The Trust must be “Irrevocable” – this means that once the Trust is set up – the terms of the trust cannot be changed.
  • The Medicaid Applicant cannot have any incidence of control over the Trust whatsoever.  This means the Medicaid cannot be the trustee of the Trust or have any decision-making authority at all in regards to the Trust.
  • Finally – and most importantly, the Medicaid Applicant must not receive any benefit from the assets transferred into the trust.  If the Medicaid Applicant has access or any potential access of the assets in the trust – then the government will deem those funds eligible for Medicaid.  Transferring assets into a trust must have the same result as completely giving the assets away – you no longer have any ownership, control or benefit from those assets.

Just as an example of how this would work – someone with substantial assets – such as a family farm or $2 million of investments – would have to be willing to transfer those assets into an irrevocable trust at least five years from the date they would anticipate having to apply for Medicaid to pay for Senior Care.  The beneficiaries of that trust would have to be their children or some other third party.  When I explain this to people – most of the time – they are no longer interested in having a trust – because they don’t want to lose control or the benefit of their own assets.

When we have a married couple and one spouse is in the nursing home a Revocable Living Trust can be an option for Medicaid Planning. Here is a general overview of how that would work.

  • Let’s assume a married couple has $2 million in assets.  Most of these assets are jointly held.  The husband is in a skilled nursing facility which costs $8,000 a month. The couple is paying this monthly amount out of pocket — from their own funds.   The wife is relatively healthy.
  • The wife can set up a Revocable Living Trust while she is living and the married couple can transfer all of their assets into the Wife’s Trust.  While the wife is living – the trust is revocable – meaning she can terminate it, amend the terms of the trust and use the assets in the trust for her benefit.
  • Medicaid Rules state that transferring assets between spouses are exempt transfers and no penalty would be assessed.
  • The Wife’s Trust states that when she dies, all of the assets in the trust go to their (the married couple’s) two children in equal shares – the husband in the skilled nursing facility will not inherit anything.
  • While the wife is living – she has a duty to pay for the husband’s $8,000 monthly skilled nursing costs.
  • If the wife dies before the husband (who is in the skilled nursing facility) then per the terms of the trust, the remainder of the $2 million in assets would go to her children and not her husband’s estate.
  • The husband has no assets because he did not inherit any assets from his wife and therefore, he should qualify for Medicaid.  The Assets transferred to the children through the wife’s will should not be counted as an asset for the husband and the husband should be Medicaid eligible.

By using a Revocable Living Trust for the wife’s estate plan, we have been able to preserve the children’s inheritance and created a situation where the husband should be eligible for Medicaid.

These are two examples of how trusts can be used for Medicaid Planning. As I have stated before, Medicaid Planning is very fact specific.  You should go to an estate planning attorney that is experienced in Medicaid planning for more guidance as to your or your family’s particular situation.  This article is for informational purposes only.