While people are living longer lives than they did in the past, it also creates a higher probability that a person will need the service of a long-term care facility someday. The cost of long-term care will often deplete a person’s savings within a short period. Without the support of Medicaid, people will possibly end up having to sell assets in order to come up with the money to afford their long-term care. Short of a proper estate plan, the money they have earned and the assets they have gained throughout their life will be used solely to pay for their long-term care instead of going to loved ones.
While a trust can either be revocable or irrevocable, in order to use the trust to protect assets from Medicaid, the trust must be irrevocable. Any assets or money that are placed in a revocable trust are considered and recognized by Medicaid as accessible financial resources. This will jeopardize the assets and money that have been placed in the revocable trust, as they will be used to pay for long-term care before Medicaid will provide coverage.
For these reasons, it is advised to consider creating an irrevocable Medicaid trust. The creator of the trust (the grantor) will fund the trust with their own assets and money. They will then give full control of the trust to a trustee who, upon the grantor’s death, will distribute the assets and money in the trust to the beneficiaries. An irrevocable trust is one that will not be able to be changed once the grantor has properly created and executed the trust. Therefore, the grantor will have no access to the assets or money placed in the trust.
There are many benefits to creating an irrevocable trust, but the main benefit is to protect resources that the Medicaid recipient will be required to “spend down.” Spending down assets is simply the process of gifting, placing in trust, or using the excess money and assets before a person is eligible for Medicaid. This will limit the amount of money and assets Medicaid will take to cover the long-term care costs before they will provide coverage. Additional benefits include:
- Protection of assets
- Provide income to the grantor
- Principal is protected from long-term care expenses
- Principal can be distributed to a third party
- Trust assets protected from beneficiaries’ creditors
- Assets may pass to family members
- Tax benefits
If you choose to use an irrevocable trust to spend down assets for Medicaid, you or your spouse will not be able to be granted the title of the trustee. If you or your spouse are named as trustee for one another’s irrevocable trusts, you will want to change this as soon as possible. Medicaid will view the trustee as having access to the money and assets in the trust and will count it as part of your assets when determining if you may receive Medicaid coverage. Additionally, you should remember that you will be unable to access the trust for any reason, including a financial emergency. While it is important to safeguard these assets from Medicaid, be sure that you leave enough cushion to support yourself if any unforeseen incident were to occur.
Furthermore, an irrevocable trust will also protect those assets placed in the trust from creditors. Many families choose to place a majority of the family estate or family assets in the irrevocable trust to be sure that creditors will be unable to attach liens on those assets.
If you are unsure about whether an irrevocable trust is best suited for your needs, contact an experienced Medicaid consultant. The Long Island, New York Medicaid professionals at P&P Medicaid Consulting, Inc. are available to assist the residents of Nassau County, Suffolk County, and Queens in preparing applications for Medicaid eligibility, while taking advantage of planning options that will protect assets. For more information or to schedule a consultation, contact our Long Island Medicaid eligibility consultants at (516) 541-4770 or fill out our contact form.