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Protecting Your Assets with a Medicaid Trust

By September 29, 2020Other

Although you may not realize it now, there is a very good chance that you, or your spouse, will need to rely on Medicaid in the future. If that need does come to pass, and you failed to plan ahead, your retirement nest egg could be at risk. A Medicaid trust could help you protect that nest egg. To help you understand the need to plan ahead, a Phoenix Medicaid planning attorney at Morris Hall PLLC explains how a Medicaid trust can help to protect your assets.

Long-Term Care Costs and the Need for Medicaid

If  you (or a spouse) need long-term care (LTC) at some point, Medicaid may be your best option for covering the high cost of that care. Nationwide, the average monthly cost of LTC was more than $100,000 per year for 2019.

Like most seniors, you will probably rely on Medicare to cover the majority of your healthcare expenses. Unfortunately, however, Medicare only covers LTC expenses under very limited circumstances, and even then, only for a very short period of time. Furthermore, most basic health insurance plans also exclude LTC expenses. Therefore, unless you purchased a standalone long-term care insurance policy prior to the need for coverage, you will be faced with the prospect of covering your LTC expenses out of pocket. For the average person, an entire retirement nest egg could be lost to LTC costs if forced to pay for them out of pocket. This is where the need to qualify for Medicaid comes in because Medicaid will help with LTC costs.

The potential problem arises because Medicaid is a “needs based” program, meaning that Medicaid uses both an income and a “countable resources” limit when determining eligibility. Although some assets, such as a primary residence and a vehicle, are exempt from consideration, it is still easy for a retiree to have non-exempt assets that exceed the countable resources limit.  If that is the case, your application will be denied. At that point, you will have to “spend-down” your excess assets before Medicaid will approve your application.

How Can a Medicaid Trust Help?

Nobody wants to watch their hard-earned assets disappear because of the need to pay for LTC. One way to protect those assets is to transfer them into a Medicaid trust. To benefit from the protection a trust can offer, however, it must be the right type of trust. All trusts also fall into one of two general categories. The first is a testamentary trust which does not activate until a provision in the Settlor’s Last Will and Testament causes it to activate upon the death of the Settlor. A living trust, as the name implies, is a trust that activates while the Settlor is alive and as soon as all formalities of creation are in place. Living trusts can also be divided yet again into two categories – revocable and irrevocable living trusts. If you create a revocable living trust you retain the ability to modify or revoke the trust at any time and for any reason -- or even without providing a reason. On the other hand, if you establish an irrevocable living trust you can never modify nor revoke the trust for any reason. If your goal is to protect assets from the Medicaid spend-down requirement, this distinction between revocable and irrevocable living trusts is crucial.

A Medicaid trust is an irrevocable trust wherein the income is payable to you for life, but the principal cannot be applied to benefit your or your spouse. Upon your death, the principal remaining in the trust is paid to the beneficiaries named by you (usually children and/or grandchildren). This way, the funds in the trust are protected and you can use the income for your living expenses. For Medicaid purposes, the principal in a Medicaid trust is not counted as a resource for eligibility purposes if the Trustee cannot pay it to you or your spouse for either of your benefits. If you do end up in a nursing home, however, the trust income will have to be paid to the nursing home in most cases.

Contact a Phoenix Medicaid Planning Attorney

For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about a Medicaid trust, or about Medicaid planning in general, contact an experienced Phoenix Medicaid planning attorney at Morris Hall PLLC by calling 888-222-1328 to schedule your appointment today.

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