By Donald L. Kingett Esq.
You may be able to protect your assets for your kids and still qualify for Medicaid. This requires careful planning.
Some people give away assets, to a trusted child or other relative, however those assets could be lost to lawsuits, creditors or a divorce proceeding. Instead, we typically recommend the use of an irrevocable trust. A trust is an entity whereby the "trustee" holds legal title to property for the "beneficiary". The trust document provides the rules for the trustee and the trustee must follow those rules, which provides protect of the assets. The terms of the trust will determine whether the assets in the trust will be counted against the Medicaid applicant for Medicaid qualification purposes.
A "revocable trust" can be changed or revoked by the person who set it up, so the assets in a revocable trust are countable in determining Medicaid eligibility. As such, revocable trusts are of no benefit in Medicaid planning. On the other hand, an "irrevocable trust" cannot be changed after it has been established. Typically, an irrevocable trust is drafted so that income is payable to the person who set up the trust (the "grantor”) for their life, however the principle in the trust can't be used for their benefit or their spouse's benefit. This allows the funds within the trust to be protected and the income can be used for living expenses. The principal in such a trust, for Medicaid, is not counted as a resource, as long as the trustee cannot pay it to the Medicaid applicant or their spouse. At death, the assets in the trust will pass to your named beneficiaries.
There are some drawbacks to an irrevocable trust, specifically; you cannot gain direct access to the trust funds even if you need them for some other purpose. Indirect access to the principal, through your beneficiaries, may be available.
A trust can be structured where income is not paid to either you or your spouse. This trust can be set up for the benefit of your children or other beneficiaries. Of course, these beneficiaries (in their discretion) can use the property for your benefit if needed. There is, however no legal requirement that they do this.
By properly setting this trust up, the beneficiaries can receive the property with a "step up" in basis at your death. This type of trust will also prevent the need to file a gift tax return when the trust is set up and the income from the trust can be taxable to you, rather than to the children.
Establishing and transferring assets to an irrevocable trust within the five-year term prior to applying for Medicaid can result in a period of ineligibility. The actual period of ineligibility depends on the amount that is transferred into the irrevocable trust.
If you would like to learn more about using Irrevocable trusts for protection from Medicaid, please call us for an appointment.
***Disclaimer: This article does not constitute legal, accounting or other professional advice. Only through a personal, confidential consultation with qualified legal counsel can anyone properly evaluate their own unique Tax or estate planning challenges and determine what, if any, appropriate legal strategies and tactics should be implemented to meet those challenges.”***
