Use of Trusts in Medicaid Planning

Many think transferring assets to a trust protects them from long term care expenses. While transferring assets to a revocable living trust can be an effective planning strategy for probate avoidance, the assets are still countable towards Medicaid’s minimum allowed resources for qualification.

An Irrevocable – Asset Protection

Trust (APT) can, however, be effective for asset protection purposes. Assets transferred into an APT are “locked up” and unavailable to the settlors establishing the trust. However, the assets in the APT are not counted as an available resource for Medicaid purposes, as long as they were transferred into the trust at least 5 years before applying for Medicaid (or 3 years before applying for VA-A&A benefits).

For example, the Smiths opt to transfer all or a portion of their assets into an APT, leaving out enough to cover their living expenses for the next 5 years. Then, if one of the Smiths needs skilled nursing care, all assets in the trust will be exempt for Medicaid qualification. The trust assets will never have to be used to pay for skilled nursing care. Upon the deaths of both spouses, the trust is terminated, and the remaining assets are distributed to the Smiths’ children or other beneficiaries designated in the APT.

The APT is not without downsides.

Use of Trusts in Medicaid Planning The settlor must give up direct control of the assets. For this reason, the settlor should always leave sufficient funds outside the trust to cover expenses during the 5-year look-back period. Accordingly, it’s particularly important the settlor appoints a trustee who is honest and includes lifetime beneficiaries (usually adult children) willing to give assets back to the settlor if needed before the 5-year period expires. While the settlor must give up control of the assets, the APT has flexibility. The settlor can continue to live in his or her house. The trust may also sell (or buy) the house, stocks, and other assets. Note: If a large part of the settlor’s assets are qualified retirement plans, they must be cashed out and taxes paid before those funds can be transferred into the APT. An Asset Protection Trusts may be a very effective “pro-active” planning tool. Each client’s situation requires careful consideration and an experienced estate planning or elder law attorney familiar with this area of the law. ~ Editor’s Note: This article was submitted by James P. Berger, J.D., of Berger Estate & Elder Law, P.A. who can be reached at 913-491-6332 or by email at jim@berger-lawfirm.com. See ad on page 29.