Benefits of a Trust in Medicaid Planning
Introduction
Medicaid is a state program with federal funding. The Medicaid system is set up to help individuals who cannot afford to pay for medical costs or nursing home expenses that they need. Additionally, Medicaid will help cover costs for people with permanent disability. Although Medicaid provides an often necessary function for elderly or disabled people, the program is not necessarily free and individuals must meet certain income and asset limits to be eligible. If a person attempts to go on Medicaid before they meet those limits, or if a person transfers items away for less than fair market value to meet those limits, Medicaid can either disapprove the individual for Medicaid, extend the time before the person is eligible for Medicaid, or if the gifts are discovered after a person is on Medicaid or deceased, “claw back” gifts that were transferred for less than fair market value within five years of the individual going on Medicaid. These repercussions can be devastating and cause unforeseen financial issues for families. This blog will discuss how trusts can help preserve assets for individuals who may require Medicaid care.
The “Look Back” Period
Oftentimes people attempting to qualify for Medicaid without the help of an attorney will attempt to qualify by making large gifts of assets to family members. This strategy can cause a litany of issues if done improperly. In order to prevent people from gifting assets to intentionally meet the asset limits, Medicaid programs have implemented “Look Back Periods”. Typically this is a period of five years before an individual goes on Medicaid. If a person seeking to qualify for Medicaid is found to have made gifts of property for less than fair market value during this time, Medicaid can go after these gifts in order to cover the costs incurred by the program for providing care to the individual. This means that if the money gifted to family members has already been spent, the family may be liable to cover those costs to Medicaid. This can have substantial unforeseen financial repercussions.
Benefits of a Trust
In order to avoid potential unforeseen complications caused by the “Look Back” period, individuals can use a trust to structure these gifts well in advance. Medicaid Asset Protection Trusts (hereinafter referred to as MAPTs) are trusts created to allow an individual to make a gift to an irrevocable trust before the “look back’ period begins.
If such a trust is structured correctly it can remove assets gifted to the trust from the individual’s estate. This makes it easier for the individual to qualify for Medicaid assistance, and preserve assets within the individual's estate. These trusts should always be drafted by an attorney as attempting to do it yourself could lead to negative Medicaid repercussions as well as various gift and estate tax issues.
Other Planning Considerations
In addition to helping preserve an individual's estate, these trusts can also come with the benefits of creditor protection and control over how your assets will be distributed upon your passing. When it comes to planning for Medicaid timing is everything, so do not hesitate to schedule a free consultation should you have any further questions regarding planning for Medicaid.
