Elder law attorneys often use trusts to help protect assets from nursing home costs. Some trusts can protect assets, while others will not.
Some trusts are acceptable for Medicaid, while others are not. Elder law attorneys with expertise in Medicaid eligibility know how to use the appropriate trusts for every asset protection situation.
What is a trust?
A trust is an agreement between one person (called the “settlor” or “trustee”) making and transferring assets to the trust and another person (the “trustee”) accepting responsibility for holding and managing the assets of the trust for the benefit of one or more beneficiaries. In some cases, the settlor also serves as the trustee.
The assets of an irrevocable Medicaid Asset Protection Trust (sometimes referred to as an “MAPT”) do not count against you for purposes of Medicaid eligibility. However, Medicaid will penalize you with partial ineligibility if you apply for benefits within five years of transferring assets to MAPT. A MAPT settlor irrevocably transfers assets to the MAPT without retaining any right to claim or withdraw the assets, but the settlor may receive all net income from the trust. If an MAPT trustee has discretion to distribute trust assets to the settlor, all trust assets are accounting resources even if the trustee declines to exercise discretion. This type of MAPT plan helps beneficiaries avoid capital gains taxes and protects the settlor from the beneficiaries’ legal and financial problems.
A revocable trust (sometimes called a “living trust”) is almost the opposite of an APM. A settlor may rewrite or terminate a revocable trust at any time for any reason. Because a settlor in a nursing home can modify or completely rewrite a revocable trust, Medicaid counts the assets of the trust against the settlor’s $2,000 Medicaid resource limit, making Medicaid eligibility almost impossible without spending all of the assets of the trust.
Testamentary spousal trusts
A person creates a testamentary trust through the language in their last will and testament.
The federal law that accounts for assets in a revocable trust does not account for assets that a deceased spouse leaves in a testamentary trust for a surviving spouse. For example, married people often use testamentary trusts to protect their spouses’ investment accounts, IRAs, and other monetary assets.
Miller Trusts (also known as Qualifying Income Trusts or QITs) address surplus income issues for some retirement home residents. They transfer excess income to ITQs and pay nursing home bills with the income. A QIT only works when you need Medicaid, and Medicaid must be the beneficiary of the QIT after you die.
about the authors
Jeff R. Hawkins and Jennifer J. Hawkins have practiced in the areas of trusts, estates and elder law for over 26 years. Find more information on these and other topics at www.HawkinsLaw.com. © Copyright 2018 Hawkins Law PC. All rights reserved.