Medicaid planning is a long-term care planning strategy that helps an aging adult or couple protect assets while working towards qualifying for Medicaid government assistance with expenses related to nursing home or in-home care. To qualify for Medicaid, you must meet income and asset limitations imposed by the regulations. For many couples, they own more assets than allowed but not enough to pay outright for costly long-term care. This can create a dilemma that requires some careful planning by a knowledgeable elder law attorney.
Revocable Trusts Do Not Work for Medicaid Planning
The first item to understand is that creating a revocable trust will not accomplish your goals in this situation. Trusts that can be revoked entirely or amended in part are commonly used in estate planning because they do offer many benefits. Medicaid will look at the assets in a revocable trust and count one hundred percent of them. This strategy will not help someone qualify for Medicaid.
A Trust Created for Medicaid Planning Must Be Irrevocable
The Medicaid regulations state that if you can receive back any assets from the trust, then the entire value of the trust becomes a countable asset for Medicaid eligibility purposes. A trust created with this goal in mind must be irrevocable and prohibit distributions back to the grantor for any reason. However, you can create an irrevocable income-only trust that pays back income to you for life and the income amount will be countable, but not the principal amount funding the trust. The principal amount that funds the trust is deemed a gift and will invoke the 5-year look back. This means you need to create this trust at least five years before you plan or need to apply for Medicaid.
When to Use a Special Needs Trust in Medicaid Planning
For someone under the age of 65 who is disabled and receiving government disability checks, a special needs trust may be the best option. Known as a (d)(4)(A) trust, after the section of the Social Security law describing this trust, it can contain your own assets, benefit you for your entire life and still be non-countable for Medicaid. This type of trust must contain a “payback” provision. A “payback” provision provides that, upon the grantor’s death, the state will be reimbursed the Medicaid benefits provided, up to the amount remaining in the trust. Depending on the amount used to fund the trust, often the assets are spent on long-term care and little is left to pay back to Medicaid.
Third-Party Special Needs Trust
The trust discussed above is known as a first party trust because the assets in the trust are those owned by the grantor/lifetime beneficiary. In contrast, a third-party special needs trust is a trust set up by someone else for your benefit. For example, a relative of someone on disability may indicate in a will that a trust be established for this heir to prevent the inheritance from disqualifying the person’s ability to receive government benefits.
If your goal is to protect your assets in order to qualify for Medicaid in the future, contact the experienced elder law attorneys at Stouffer Legal. They can assess your situation by helping you determine your goals, inventory your assets and create an irrevocable trust strategy. You can schedule an appointment by calling us at (443) 470-3599 or emailing us at office@stoufferlegal.com.
