Oct 28, 2022 Medicaid Protection Trust
Hard working New Yorkers are looking ahead to their elder years and want to protect themselves from financial hardship occasioned by sudden illness. Unless they are very wealthy and can pay for their own long-term institutional or in-home nursing care, they may need to look to Medicaid to subsidize their care.
While Medicaid does pay for nursing home and community-based care, it requires that program applicants whose income or available resources exceed the asset and / or income eligibility caps spend down their assets and/or income until they become eligible for benefits. Since Medicaid is a needs-based program, applicants who own houses or other substantial assets are ineligible.
If you own a home individually or with a spouse, Medicaid provides benefits, but it will place a lien on your home for the value of the benefits it provides you during your life. When your life ends, Medicaid can seek to recover the money from your house when it is sold or when your spouse dies. Unless you take some steps to protect your home, ideally more than 5 years before you need Medicaid, the biggest asset most New Yorkers ever own, the source of their wealth, will not be fully or at all available to leave to their children or grandchildren.
How Can You Protect Your Home and Assets from Medicaid’s Claim for Reimbursement?
The answer for many people is called a Medicaid Protection Trust. Sometimes called a Medicaid Asset Protection Trust or a Medicaid Trust, all those names refer to the same legal strategy.
A Medicaid Protection Trust is an irrevocable trust into which you can transfer your home and other financial assets. Because the Medicaid Trust is irrevocable, placing all your assets into the trust may not be the best plan for everyone. Life is unpredictable and placing all of your non-retirement accounts or other assets into an irrevocable trust would prevent you from accessing those assets if you needed to or wanted to.
Because neither you nor your spouse can be the trustee of the trust, the person you designate as trustee must be someone in whom you have absolute trust: a genuinely devoted daughter or son, a younger sibling, or an attorney with impeccable integrity. If an occasion arose in which you needed access to some of the assets in the irrevocable trust, the “trusted” trustee could make them available for you. The key is that you and your spouse do not have power to affect the trust assets. If you did, as in a revocable trust, Medicaid would consider the assets to still be yours and require that they be spent down before you were eligible for benefits.
If placing all or most of your financial assets in an irrevocable Medicaid Trust is too aggressive an action for you, the same should not be true of your home. The benefits of transferring your home into a Medicaid Protection Trust usually outweigh any downside:
Benefits of Putting Your Home to a Medicaid Protective Trust
For most New Yorkers, their home is their most valuable single asset. Therefore, it deserves special consideration when planning to protect assets.
The advantages of transferring your home or assets into a Medicaid Protection Trust when you are approaching your later years, or if you may suffer a serious illness, include the following:
- Medicaid will not count it as an asset available to you (after 5 years in the trust);
- Since the trust owns the house instead of you and your spouse, Medicaid has no claim for reimbursement against its value;
- Your spouse can remain living in the house for life;
- You can retain a right of residence in the house for life;
- You can direct that the house be passed on to your children or grandchildren or another chosen beneficiary;
- The trust can sell the house during your life and purchase another one in which you and/or your spouse continue to possess a life estate;
- The house will pass to the trust beneficiaries without going through an expensive and public probate process;
- Because you maintained a right of residence in the home along with other grantor-retained rights, the IRS will allow a “stepped up” basis in the value of the house so your children will not incur any capital gains tax obligations if they receive the house as beneficiaries of the trust,
- While you cannot control the irrevocable trust assets during your life, you can reserve a “power of appointment” as a term in the trust which allows you to change the identity of a beneficiary if you decide you want to delete a previously named beneficiary’s name or add another, and
- Although neither you nor your spouse can access financial assets held by the Medicaid Asset Protection Trust, future beneficiaries can access the trust assets.
The disadvantages of transferring your home and/or assets into a Medicaid Protection Trust:
- An irrevocable Medicaid Protection Trust is irrevocable. Once the assets are transferred into the trust, you no longer have power to access or use them at your discretion;
- Life circumstances may change, and you may want or need access to the principal assets, especially liquid assets, accounts, etc.;
- Choosing a trustee is sometimes a leap of faith. If you have no one in whom you have total trust, placing all your financial assets and your home into an irrevocable trust may present more risk than benefit. That being said, at least in NY, you are able to reserve the right to change trustees should you wish to; and
- If your home is a coop, coops will sometimes not consent to ownership of the shares of a coop unit to be held in a trust.
Don’t Delay Medicaid Planning — Contact Ely J. Rosenzveig & Associates Today
There is no magic age that indicates it’s time to create an estate plan, especially to establish a Medicaid Protection Trust. Everyone thinks they will continue to remain healthy, or that nursing home or community-based in-home care is decades in their future. But no one should wait to discuss these issues with an experienced trust and estate lawyer who has extensive practice helping to protect elders’ valuable assets from Medicaid pay-back obligations. To obtain the wide-ranging advantages of a Medicaid Asset Protection Trust, the trust must be in place five years prior to filing an application for Medicaid.