PLANNING FOR MEDICAID WITH TRUSTS

People who know anything about Medicaid know that they’re automatically ineligible for benefits for three years. Well, maybe it would be more accurate to say that people who know a little about Medicaid think they’re automatically ineligible for benefits for three years. With Medicaid, a little knowledge is truly a dangerous thing.

I’ve explained in previous articles how the Medicaid lookback rule works. The long and short of it is, you’re never automatically ineligible for Medicaid. A person could qualify for benefits in one month or ten years. It simply depends.

The only thing that is guaranteed is, if you need long-term care and you continue to pay for that care from your own money, you’ll be a lot poorer year over year, because long-term care costs a lot of money.

Almost everyday I meet with a person who is interested in Medicaid planning. From time to time, someone will say, “What about a trust. I heard you could put your money in trust, and the State can’t get it.”

Certain trusts do work for Medicaid planning purposes; however, whether a trust is right for your situation depends. (By this time you may have noticed a theme with Medicaid planning. Whether or not something is right for a person and whether or not a person will qualify for Medicaid sooner rather than later often depends upon their facts and circumstances. Medicaid planning is not a cookie-cutter solution. One size never fits all.) One thing that often stops people from even thinking about using a trust is the fact that using a trust often triggers a five year, rather than a three year, lookback period.

So, for those who thought they were automatically ineligible for Medicaid for three years, a whole new misconception is thrown into the mix: automatic ineligibility for five years. Like outright gifts to individuals, however, gifts to trust do not cause a person to be automatically ineligible for Medicaid for five years.

Gifts or uncompensated transfers (giving something of value to someone for less than what it is worth; “I give you my house for $1.” That’s a gift.) make a person ineligible for Medicaid. The greater the value of the gift, the longer the period of ineligibility. For example, a person who gifts $200,000 will be ineligible for Medicaid for a longer period of time than someone who gifts $100,000.

But not all gifts make a person ineligible for benefits. For example, certain gifts are simply exempt from the penalty provisions. Under certain circumstances, a person could gift their entire house to another person without incurring any period of ineligibility. And, a gift of small value, say $4,000, would not result in any period of ineligibility, in and of itself.

Although the lookback for transfers to and from certain trusts is five years, the methodology that the State uses to calculate periods of ineligibility for Medicaid based upon gifts is the same whether or not the gift is to a person or to a trust. For example, let’s assume that a mother wants to gift $100,000 to her son. Let’s further assume that whether the mother makes the gift into a trust or simply gives the son the money, she’ll be ineligible for Medicaid for 20 months. Question: Are there any benefits in making the gift to the trust?

The answer is, yes. Gifting the assets into the trust allows for creditor protection and money management. If the mother simply gives the money to the son, that money is subject to whatever life problems the son has.

If the son is sued, his creditors could get the money. If the son gets divorced, the money could become an issue in the divorce. If the son has poor spending habits, the money is his to spend anyway he wishes.

But, if the money were held in trust, the son’s creditors could not get at the money. The money would not be an issue in his divorce. If the son had poor spending habits, someone other than the son could be appointed trustee to manage and disperse the money for the son’s benefit.

Whether a trust works for you depends. But the fact that there are a number of possibilities should not scare you. It should motivate you to seek advice.