Setting Up a Medicaid Trust

A Medicaid trust is essentially a trust that is designed to allow you to qualify for Medicaid benefits by reducing your amount of countable assets. Medicaid, which is intended to help individuals pay for medical treatment who wouldn’t otherwise be able to afford it, restricts who can get benefits based on income. If you are too wealthy, you won’t qualify.

First, Why?

You might have a great deal of wealth in the form of various assets, but medical or nursing home bills may still be either out of your reach or intensely burdensome. In addition, you want to make sure your wealth goes to your loved ones when you pass on, not to hospital bills. Medicaid can help you but only if you qualify.

Certain irrevocable trusts can be designed to reduce your overall amount of wealth so that you fall within Medicaid’s strict income limits. It just needs to be designed properly.

Challenges and Requirements

It may seem simple-you gift your wealth in trust to your heirs, and thus reduce your countable assets while still benefitting from it. Unfortunately, it’s not that simple. Federal law imposes certain transfer penalties on those who transfer property through trusts or gifts, thus keeping them from qualifying for Medicaid for a period of time (five years, to be exact). Also, revocable trusts will still be counted among your assets, so those are useless in this situation.

There are a few specific types of trusts that won’t incur a penalty. Certain irrevocable trusts, including supplemental needs trusts and testamentary trusts, can be used to avoid this transfer penalty.

How to Set Things Up

Given the complications involved in setting up a Medicaid trust, there are a few things you’ll want to consider. These include the following pointers:

  • Choose the right structure: The right type of structure is key. Each type of trust has its own advantages and drawbacks. A testamentary trust is useful for avoiding the penalty, but only if payments are non-obligatory. A supplemental needs trust will avoid the penalty also, but any money spent by the state on the Medicaid applicant will need to be reimbursed after his or her death.
  • Start early: An irrevocable trust will enable you to transfer a large amount of wealth out of your estate, but you won’t be able to qualify for Medicaid for five years after. Planning ahead-such as five years prior to needing Medicaid can ultimately help you avoid the effects of penalties for putting assets into a trust.
  • Involve legal help: Trusts must be structured correctly in order to do what they need to. This is a complex process, and it is vital to make sure the various documents and agreements are properly structured and worded. An estate lawyer will have the expertise and skills needed to make sure this happens.

By planning ahead and enlisting a skilled lawyer to structure the trust to meet your specific needs, you’ll be able to benefit from Medicaid while also protecting your possessions. To learn more about setting up a Medicaid trust, contact Hart & David today.

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