Medicaid Trust Planning
How to get Medicaid Benefits without losing your entire Estate
The purpose of a Medicaid Trust is to exempt your personal assets from a determination of Medicare eligibility. However, you must create and fund this living trust at least 60 months (5 years) before you apply for benefits. You only need 30 months (2.5 years) before applying if in California. This is called your ‘look back’ period.
This special purpose trust is a highly effective asset preservation strategy. It allows you to name one or more persons – other than yourself or your spouse – to manage it as the ‘trustee.’
How the assets are managed or invested is based upon your written instructions. Change the trustee any time this person is not managing the assets to your satisfaction.
First, you transfer ‘title’ of personal assets (real estate, CDs, brokerage account) which become living trust assets. Both you and your spouse can still get all the income. You can also gift selective assets to your heirs.
You are permanently or rather irrevocably ‘giving’ away assets to the trust because you want Medicaid eligibility. This means you no longer have direct access to the principal investments. This is how it works. But remember you and your spouse can still get a lifetime of income from those assets.
Upon death those assets you placed in the trust automatically become the property of your heirs. There is zero probate expense, court, or delays.
What Type of Assets can Go in a Medicaid Trust?
Rental Property, Certificates of Deposit, Bank and Brokerage accounts, Stocks and Bonds, Mutual Funds, and even your Personal Residence.
Your personal residence ‘net equity’ (market value minus mortgage balance) below $595,000 is exempt. In other states the number is $893,000 while in CA there is no exemption limit. In a few states your home is ‘non-exempt’ so you need to verify state law. Otherwise you may continue to live in your residence.
In most cases, do NOT transfer your retirement accounts (401k’s and IRAs) to the Medicaid Trust. If you do, you could easily trigger a tax event by cashing out the plans. Be careful.
There are monthly income limits based upon the state where you live. For example, in 2020 the limit is $2,349 for a single senior monthly that applies for long term card. Any excess income above the $2,349 would contribute to your care expenses.
Gifting Assets vs. Medicaid Trust
While gifting assets is more flexible, those transfers are also subject to the ‘look back’ period. The minimum is 60 months in most states, or 30 months in California. Remember to analyze any potential capital gains or gift taxes.
This specialty trust is a valuable planning tool when your personal assets or income exceeds the Medicaid limit. Shifting assets to this living trust effectively excludes them for eligibility purposes. You then become eligible for benefits. In addition, the trust protect assets from creditors of your heirs.
The Medicaid Trust enables a person with assets to exclude them for qualification purposes. This means they can get benefits without losing their estate. However, they must plan several years in advance.
It also keeps assets safe from Medicaid estate recovery. When properly executed it’s a win for everyone in the family.