Nursing Home Protection
In order to qualify for Medicaid, a person in the nursing home has to spend down assets to the allowable limit. That limit is based upon whether the applicant is married or single and can vary depending on income. For a married couple, combined resources of about $90,000 plus the principal residence and one vehicle are exempt. Using an Irrevocable Trust allows a person to transfer assets, still use and control them, but not own them for Medicaid purposes. If five (5) years has passed since the transfer of assets into an Irrevocable Trust, those assets are not subject to a penalty. Any assets transferred into the Trust, or to other individuals, within five (5) years are subject to a penalty if that person were to apply for Medicaid. The penalty is determined by taking the value of the asset and dividing it by the regional rate (currently $10,650 for the CNY region for 2020). Example: If Mom transfers a home worth $206,000 to her children for no consideration, that transfer is then divided by $10,650, and equals approximately twenty (20) months. That time period is how long the applicant will have to private pay due to the uncompensated transfer and wait before Medicaid will pay for nursing home care (the “penalty”).
The "Trick"
The “trick” to good Medicaid planning is to reduce or eliminate the penalty. If a person experiences a crisis,, we can protect and save about one-half of the assets. This is true even if the person is already in the nursing home. In essence, it is never too late to plan unless you do not recognize the need.Neither the nursing home nor the state takes assets in that situation unless payment is not made in some fashion to the nursing home. If payment is not made, the nursing home has a right to go after the assets. If you are single and on Medicaid, you may protect your primary residence until you die. However, upon death, Medicaid will take the proceeds of the sale of the home to reimburse them for the costs.
It is important to remember that so long as there are assets, it is never too late to protect them. There are many rules that allow for exempt transfers, such as child caregivers and disabled children. If these circumstances exist, you may be able to transfer assets without incurring a penalty period.
Upon a transfer of assets into your Irrevocable Trust, the five (5) year Medicaid clock begins to run. Once the five-year Medicaid look-back period expires, the transferred assets are no longer considered yours for purposes of Medicaid, meaning they will be protected from Nursing Home costs and liens. Asset protection from creditors may begin immediately to those transferred assets depending upon the facts and circumstances. However, these Trusts cannot protect you if you wish to file bankruptcy or if you have existing creditors when the Trust is created.
THE IRREVOCABLE MEDICAID TRUST
The Irrevocable Trust is both a life-planning and death-planning document. It allows for probate avoidance upon your death, but also provides for asset protection if you become disabled or enter a nursing home. This Trust allows for asset and tax management while also providing flexibility for changes in your life as time progresses.
This Trust is created by a “Grantor” or “Trustmaker” and is managed by the Trustee who makes decisions regarding distributions, sales, investments, etc. …Often the Grantor is also the Trustee, as that provides for continued control of the assets by our client. If the Trustee is a third party, it is important that he or she be someone the Grantor can rely upon. The Grantor retains the right to change who the beneficiaries are and how they receive their inheritance, a key to maintaining control of the assets.
The Irrevocable Trust allows control of the assets within the trust and can be set up to allow access to income derived from the principal assets, but will prevent the Grantor from direct access to the principal contained in the Trust. The principal can, however, be distributed out of the Trust to children or grandchildren if the need arises. This creates further flexibility.
The Trust will generally be set up to take title to many of your assets, including bank accounts, life insurance, brokerage accounts, CD’s, real estate, etc…. It can also be the beneficiary of life insurance policies and even IRAs or other qualified assets. It cannot, however, take title to IRAs during your lifetime.
The Trust also has a Trust Protector, usually a professional approved by the Grantor. The Trust Protector’s job is to ensure that no Trustee takes advantage of the trust or jeopardizes the beneficiaries’ or the Grantors’ positions.
As a tool to reduce post-death costs, any assets put into an Irrevocable Trust will avoid probate and the cost and delay caused by the court system. It will allow your family immediate access to your assets after your death and will speed up the settlement process.
ASSET PROTECTION
Upon a transfer of assets into your Irrevocable Trust, the five (5) year Medicaid clock begins to run. Once the five-year Medicaid look-back period expires, the transferred assets are no longer considered yours for purposes of Medicaid, meaning they will be protected from Nursing Home costs and liens. Asset protection from creditors may begin immediately to those transferred assets depending upon the facts and circumstances. However, these Trusts cannot protect you if you wish to file bankruptcy or if you have existing creditors when the Trust is created.