Medicaid Trusts: The Ins and Outs 

Salvatore M. Di Costanzo, Esq.

Partner: Maker, Fragale & Di Costanzo, LLP

The most common asset protection planning technique implemented by an elder law attorney is the Medicaid Trust. Known by other names such as an irrevocable trust, income-only trust or asset protection trust, it affords tremendous benefits under certain circumstances. The purpose of this article is to educate you about the common provisions and benefits of the Medicaid Trust so that you can properly determine if it is applicable to you.

The Purpose of the Medicaid Trust

It is irrefutable that there is a possibility that you may require nursing home care someday. If you take a moment to realize that, the next logical question would be “How am I to pay for my nursing home?”. There are only four options to pay for your nursing home. Those options are:

  • Private payment – I have no objection to you privately paying for your nursing home. However, for many, it is cost prohibitive, as the average monthly cost of a nursing home exceeds $12,000/month.
  • Long-term care insurance – I believe in long-term care insurance, however, many people cannot afford the premiums or cannot qualify due to age or health.
  • Medicare – Medicare only pays, at a maximum, for the first 100 days in a nursing home.
  • Medicaid – That leaves Medicaid as your only viable alternative to paying for your nursing home.

For 2015 Medicaid eligibility purposes, you cannot have more than $14,850 of assets in your name (excluding the house and IRAs). Notwithstanding the fact that your house may not be considered an available asset for purposes of applying for Medicaid, Medicaid can still place a lien on your house. Those who intend on relying on Medicaid as the payor of their nursing home are forced to contemplate these issues and in doing so are regularly introduced to the Medicaid Trust as a mechanism to obtain Medicaid eligibility and pass their assets to the next generation.

Call us at (914) 925-1010 (Rye Office) or (914) 245-2440 (Yorktown Heights Office) to schedule a consultation or complete our online form.

Mechanics of the Medicaid Trust

  • You are the creator of the trust. In our opinion, you should not be a trustee of the Trust. Usually, one or more of the children are the trustees.
  • The children are usually the beneficiaries of the trust after your death; however, you can name anyone as the beneficiary.
  • The trust is irrevocable. That means that you theoretically cannot change the trust. However, there are provisions under New York State law that allow for the revocation or amendment of an irrevocable trust and our trust are drafted in such a manner to allow for changed circumstances.
  • You are entitled to receive the income of the trust, if any. This means that if a brokerage account is transferred to the trust, you are entitled to receive the interest, dividends, etc. generated from that account. You are not entitled to take the principal out of the trust.
  • After five years from the date the assets are transferred to the Trust, the assets of the Trust can no longer be considered by Medicaid when applying for Medicaid.

To learn more about the Mechanics of the Medicaid Trust, please read my article Administration of an Income Only Trust. If you have any more questions, please contact Salvatore M. Di Costanzo.

Provisions Pertaining to the House

The Medicaid Trust is largely drafted with the intent to transfer your house and/or other properties to the Trust. The Trust provides that you have the right to live in the property of the trust. This means that you cannot be kicked out of your house. You are still considered the owner of the house for purposes of maintaining the house, payment of real estate taxes, the STAR exemption, the Veteran’s Exemption and any other tax benefits attached to the house. The house can be sold at any time, but only with your consent. A new house can be purchased with the proceeds of the sale from the first house.

Special Powers Retained by the Creator.

Many clients are concerned about losing control. However, a properly prepared trust affords the creator a great deal of control as permissible by Medicaid rules, regulations and case law. For instance, you have the power to change the trustees of the Trust. Consider for a moment a child named as a trustee that becomes a hooligan. You can remove and replace the trustee with someone else. Another scenario might be where you want to sell the house but the trustee will not sign the contract. All you need to do is remove and replace the trustee.

You also have the power to change the beneficiaries of the trust. Assume for a moment that your three children are the beneficiaries of the trust and one child gets divorced. You can change the beneficiaries to your remaining children to avoid having your assets become subjected to the divorce proceeding. This is a summary of the salient provision of a Medicaid Trust. I hope that you will rely on this short piece to further explore the significant benefits of this planning technique. It should not be dismissed for lack of understanding.

Call us at (914) 925-1010 (Rye Office) or (914) 245-2440 (Yorktown Heights Office) to schedule a consultation or complete our online form.