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Medicaid Planning Using A Medicaid Trust

10.14.20 written by

Each week I receive a number of calls from individuals who have loved ones who are in need of either assisted living or skilled nursing care in a facility. Those individuals usually want to understand how Medicare works and what happens when Medicare is no longer available to pay or help pay for the facility. I tell them that when Medicare stops, then the loved one either has to pay for the cost of the facility from their own income and assets or they try to qualify for assistance from Medicaid.  At that point, they usually want to understand the rules as it relates to Medicaid.  We review the health care rules, the income rules, and the asset and transfer rules as they relate to Medicaid qualification.  We then discuss a number of ways to try to qualify the loved one for Medicaid.  One planning option for trying to protect assets in these situations is the establishment of a Medicaid Trust. This article will focus specifically on Medicaid Trusts.

The term “Medicaid Trust” can mean a lot of things.  However, in the context of Medicaid planning, the creation of a Medicaid Trust relates to the establishment of a specific type of irrevocable trust.  This is a planning option that is used when a loved one needs assisted living or nursing home care in a nursing facility.  A Medicaid Trust may also be used by an individual who simply just wants to establish a way to protect assets in case they are ever in need of these types of services in the future. 

In all of these scenarios, the creator of the Medicaid Trust uses this type of trust to protect assets usually for the individual’s loved ones and family members who are listed in the individual’s will.  Normally, the individual’s child or children are named as the Trustee or Trustees of the Medicaid Trust.  The client can transfer the ownership of any asset they wish.  However, the client normally transfers his or her residence, other real estate, bank accounts, investment accounts, or life insurance policies to the Medicaid Trust. Once these assets are transferred into the name of the Medicaid Trust, then, under current Medicaid qualifications, after five years from the time of the transfer, these transfers will not be considered if that individual ever needs to apply for Medicaid thus potentially protecting a significant amount of assets. If it is an immediate crisis planning situation where the individual is going into the facility soon, then the Medicaid Trust can still be used as the vehicle that owns the gifted portion of the assets when developing an asset protection plan.  In both of these scenarios, instead of transferring assets into the children’s individual names, the assets are transferred into the name of the Medicaid Trust.

Another particular benefit of the establishment of a Medicaid Trust is that this Trust provides for creditor protection for the beneficiaries of the Trust.  Specifically, the beneficiaries’’ creditors will not be able to force the trustee to distribute assets to the creditor to pay a debt of the beneficiary.  This option is not available if the beneficiary owned the asset in his or her individual name.  Additionally, if the beneficiary is having a domestic dispute, the Medicaid Trust can protect in that situation as well. 

For example, a client comes into the office and wants to transfer his house to his children now so it would be protected in the case of a nursing home stay in the future.  The client could simply deed the house to his two children.  However, during this planning, it is learned that in the future if one child accumulates a large amount of credit card debt and defaults on his credit card debt, the client’s house could be at risk if the client puts the house directly into the children’s names.  Instead, the client establishes a Medicaid Trust and transfers the ownership of the house into the name of the Medicaid Trust to help with creditor protection for the beneficiary. 

The moral of the story is that if an individual wants to plan ahead, then the establishment of a Medicaid trust may be very beneficial. In addition, if an individual is currently in need of assisted living or more permanent nursing home care, then the use of a Medicaid Trust may be very beneficial in order to try to protect assets when developing a Medicaid plan while also protecting creditor protection for the trust beneficiaries as well.

If you are in need of these types of services, please contact your estate planning attorney to learn your options.

NOTE: This general summary of the law should not be used to solve individual problems since slight changes in the fact situation may require a material variance in the applicable legal advice.