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April 5, 2020


Are Assets in a Trust Protected from Medicaid?

Medicaid has strict qualification requirements, which means you need to plan ahead and protect yourself from losing out on this healthcare option. You

can protect assets from Medicaid in a trust, but only if you select the right type of trust.

What Is a Medicaid Trust and How Does It Protect Your Assets?

A Medicaid trust is an irrevocable trust. You place your assets into the trust to protect them from future nursing home care costs. You must have the documents drafted correctly, including making a trustee that is a relative, child, or another third party other than yourself.

These trusts are then exempt from the rules for Medicaid eligibility. This means that, because the trust now owns the assets and you are not a beneficiary of that trust, the assets are exempt from seizure.

You Must Transfer Five Years in Advance

The reason you should start your Medicaid planning now is that you have a small window where you can set up the trust, fund it, and transfer ownership of all assets. You must transfer those assets within five years prior to applying for Medicaid or entering a nursing home. Medicaid will do a five-year lookback period, and if you transfer any assets within that five years, they are not exempt.

So, even if you plan to retire in ten years, now is the time to set up that Medicaid trust so that you have a five-year window where no assets were moved from you to the trust.

Can’t You Just Give Your Assets to Family Members Instead?

Sometimes, people will try to skip the trust process and transfer ownership of assets over to loved ones instead. Giving to a family member not only puts them at risk for taxes, but those assets could be lost forever, depending on how the family member manages those assets. For example, you transfer your personal property over to a child. Now, the child’s name is on the title of that property, but you have only transferred it there to avoid losing it when you sign up for Medicaid.

Because your child’s name is on the title, any debts or legal actions taken against them can cost that asset. For example, your child is sued for unpaid debts and the courts allow seizure and sale of the home you titled to them. While your loved one was keeping that asset safe, it is subject to their personal losses. Even a divorce may require that your loved one must sell the home and split the proceeds with an ex-spouse – leaving you with no assets.

Bottom line, transferring these assets over to a family member puts them at risk. When you place them in a trust, even if loved ones are the beneficiaries, those assets cannot be seized or confiscated.

How Does a Medicaid Trust Work?

With a Medicaid trust, you will hire an experienced attorney to create the trust first. Then, your attorney can help you transfer assets in your name into the trust – basically making the trust the owner of those assets.

Once your assets are in the Medicaid trust, the government no longer considers them your assets. That means you can still use those assets, including living in your home that is owned by the trust, but that home and the value of the home will no longer be considered part of your estate.

Upon your death, the assets in the trust would then be passed down to beneficiaries you named at the time you created it. Often, these are children, charities, or other relatives.

Will Medicaid Cover Long-Term Care?

Medicaid does cover medical care, including long-term medical care and hospitalizations.

However, to unlock this coverage, you must meet strict requirements, including:

  • Be at least 65 years old or have a diagnosis of a permanent disability under SSA
  • Be diagnosed blind

On top of those primary requirements, you then must meet the financial eligibility, which is where your Medicaid trust comes into play.

Here are the financial requirements for Medicaid’s long-term care coverage:

  • You must meet a strict monthly income limit. Medicaid sets a hard limit, regardless of where you live, which is $2,313 per month. Exceptions are made for seniors who have serious medical conditions and their medical costs are much higher, even when their income is above this limit.
  • You must have limited assets available. Exempt assets include your primary home and personal belongings, and you can also keep one vehicle. You may be able to keep your life insurance, but only if it is valued under $1,500 – which is rare for any life insurance policy. Any assets outside of the exempt list are subject to Medicaid consideration. The reason being, Medicaid assumes you can sell those assets and use the proceeds for your care, even though it does not always work that way.

Considering a Medicaid Trust? You Still Need an Attorney

While you have learned the basics of a Medicaid trust and how it may protect your assets and allow you to unlock long-term care, you still need to hire an attorney.

An attorney will evaluate your current assets and see if a Medicaid trust is the right choice for you. Furthermore, setting up an irrevocable trust is a complex procedure that requires professional assistance. You need an attorney to not only draft the initial documents, but make sure all assets subject to Medicaid requirements are protected by that trust.

Sometimes, a trust is not the right answer when evaluating your options for long term care. Meeting with an attorney allows you to explore all options outside of a Medicaid trust to make sure you are choosing the right path to protect your assets.

If you are ready to explore your options for long term care or you would like to see if a Medicaid trust is the best option for you, schedule a free case evaluation today with Andrew M. Lamkin, PC. For your free consultation, call us directly or request more information online.

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