Can an Irrevocable Trust be used to protect assets when applying for Medicaid?

No doubt, long-term care in a nursing home can be very expensive for an average senior or individual. In 2020, the average cost for a semi-private room was $7,756 for each month, rising to $8,821 per month for a private room. Looking at the average Social Security payout in June 2020 (of around $15,000 per month) should help you see why seniors find it hard to afford health care.

Due to the skyrocketing price of long-term care, many seniors and low-income families are starting to embrace Medicare, a government-funded program designed for low-income families and those who cannot afford health care. If your income or assets are above the threshold for eligibility and you wish to qualify for Medicaid, you must protect your assets. But how do you do this? Can an irrevocable trust protect your assets when applying for Medicaid? I’ll be addressing that in this article.

What is an Irrevocable Trust?

There are two major types of trust; revocable trust and irrevocable trust. As its name implies, a revocable trust is a trust where its terms can be altered, changed, modified, or canceled without the attention or consent of the trust beneficiaries. Worthy to note is that a revocable trust isn’t effective in protecting one’s assets as far as Medicaid is concerned.

On the other hand, an irrevocable trust is a trust where its terms cannot be altered, changed, or modified without the consent of the trust beneficiaries selected by the grantor (the creator of the trust). The grantor, having already transferred ownership into the trust, legally relinquish all their right of ownership to the assets present on the trust. An irrevocable trust is the opposite of a revocable trust which allows the grantor to alter, change, or terminate the terms of the trust.

Unlike a revocable trust, an irrevocable trust is effective in protecting assets when applying for Medicaid.

Can an irrevocable trust be used to protect assets when applying for Medicaid?

Definitely, an irrevocable trust can be used to protect assets when applying for Medicaid. However, there are some things you need to consider. And it is also important you contact an experienced Medicaid attorney for assistance.

An irrevocable trust allows you to avoid gifting or lavishing your assets to be eligible for Medicaid. Assets in this type of trust aren’t yours, and you must designate an independent trustee. You may decide to state that the trust assets be transferred to your spouse and/ or other loved ones upon your death. For the sake of your Medicaid eligibility, it is important you don’t attempt to control the trust’s principal. Although you may use the assets in the trust while alive.

In the event that the family income is an asset placed in the trust and is done while you, the Medicaid recipient, still breathes and is housed in a nursing home, the proceeds will not be counted as a resource towards Medicaid edibility.

When set up to secure assets from being used to finance the cost of a nursing home or other long-term care costs, the name “Medicaid trust” may be adopted to indicate the type of trust.

A huge red flag with the use of this trust is that it is subject to the Medicaid five-year look-back period.

How do you secure your assets when applying for Medicaid?

Before applying for Medicaid, it is important you contact a Medicaid attorney or an elder law attorney for help regarding how to protect your assets. The main reason you need to protect your assets (if it is more than the threshold) before applying for Medicaid is to ensure that you fall within the assets ownership limit required by this government-funded health program.

There are a few methods used to project assets when applying for Medicaid. These methods are:

  • Offering gifts
  • Creating a life estate, and
  • Establishing an irrevocable trust

Need an Elder Law Attorney?

Do you intend on applying for Medicaid but don’t know how to go about it? Or do you wish to set up a Medicaid Asset Protection Trust? If yes, don’t hesitate to call our office. We boast of the best Medicaid attorneys who are experienced in matters regarding Medicaid.

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