Newsletter Articles

Using Trusts to Qualify for Medicaid

By: Tara Lynne Groth

Elder Law Associates Newsletter dated May 15, 2018


The rules for Medicaid eligibility vary around the country, since the federal government and the states run the program jointly. But according to the American Council on Aging’s Medicaid Planning Assistance resource, an individual’s income in the state of Florida must be under $2,250 a month in 2018 to qualify.

What Is Medicaid Planning?

Proper Medicaid planning, done in advance with assistance from an elder care attorney, may help you qualify for Medicaid when you need long-term care one day. It’s about transferring assets in advance so your income is under the threshold. If a person’s income is even $1 more than the cap, s/he does not qualify.

Medicaid eligibility is assessed by reviewing what are called exempt assets and non-exempt assets. Exempt assets are not considered as being available for the applicant’s care; non-exempt assets are counted as ones that could be used to contribute to care costs.

A few non-exempt assets for Medicaid eligibility purposes include mutual funds, stocks checking and savings accounts and real estate (primary residence excluded). The combination of these assets could easily disqualify an individual from Medicaid.

The Medicaid Look-Back Rules

One of the main hurdles that Medicaid imposes for eligibility is the five-year ‘look back’ period. This rule means that if an individual satisfies the asset value threshold for Medicaid today but transferred assets within 5 years prior to applying for Medicaid in order to bring his/her assets to within allowable Medicaid limits ($2,000 in most states), he or she will be disqualified.

Consequently, when health takes an unexpected turn and Medicaid planning has not been implemented in advance, asset transfers won’t help you meet the Medicaid asset threshold for eligibility.

This is why advance planning is critical.

Many individuals gift or sell property several years before applying for Medicaid with an intent to qualify for the program. But without proper guidance on asset transfers, these actions could come with gifting penalties.

How a Medicaid Trust Can Help

Medicaid trusts are one option for people interested in preserving assets as well as their Medicaid eligibility. These legal tools hold assets in trust so they are not counted as part of a person’s Medicaid application. But they must be put into use far enough in advance to satisfy eligibility requirements.

The cost of setting up a Medicaid trust depends on its terms, other planning and the number, value and nature of assets being protected.

A typical Medicaid trust might cost between $5,000 and $10,000.

If you take a far-ranging perspective to planning, the early costs could actually be far less than the cost of not planning, considering that nursing homes and other costs pertaining to long-term acre can range between $5,000-$15,000 per month depending on which area of the country you live.

Expect to pay accounting fees for annual tax return filing and, if needed, ongoing legal advisement and trustee guidance.

Medicaid Trusts have a few downsides. These trusts are irrevocable, which means the terms cannot be changed. Also, surrendering control can be challenging. Asset control falls in the hands of the trustee and the trust creator cannot be trustee.

Considerations for Creating a Medicaid Trust

When creating a Medicaid trust, consider:

Proper trust terms   A revocable living trust will not protect your assets if you are in a nursing home.  A revocable living trust is not the same as an irrevocable Medicaid asset protection trust. But the misunderstanding that a trust is a trust is fairly common. It’s a mistake people make over and over.

Asset transfers  Consult an attorney about proper timing and types of asset transfers. Be clear about the goal of these transfers.

Income caps and trusts  Income can be a Medicaid disqualifier if you live in a state with an income cap; more than 20 states do. Consult the Department of Health and Human Services in your state to learn how your state treats income.

But the type of care may be a factor, too. If Medicaid benefits are used for skilled nursing care, you can assign excess income into a trust commonly referred to as a Qualified Income Trust or Miller Trust (typical fee to set one up: $1,000 to $2,500).

Keeping Medicaid Planning Up-to-Date

If you set up a Medicaid trust, keep your power of attorney updated so that a spouse, life partner, adult child or fiduciary can continue to monitor and implement Medicaid planning on your behalf, if needed.

Please call us at Elder Law Associates PA at 1-800-ELDERLAW if you have any questions regarding the above. If you would like to request a consultation with one of our experienced and qualified lawyers, click here.


Article Source: NextAvenue