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

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

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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 resources towards Medicaid edibility.

When set up for the purpose of securing assets from being used to finance  the cost of a nursing home or other ling-term care cost, 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.

Irrevocable trust

An irrevocable trust is a trust where its terms cannot be changed, altered, or cancelled without the consent of the beneficiaries designated by the grantor. The grantor, having already transferred ownership into the trust, legally expunges 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.

Any asset you retitle into an irrevocable trust is seen as a gift. So when you do the retitling within 5 years before applying for Medicaid, you will be hit by the look back penalty period.

This is why you must execute your irrevocable trust at least 5 years before applying for Medicine. This is the only way irrevocable trusts can help you protect your assets when applying for Medicaid.

Irrevocable trusts and Medicaid eligibility

Irrevocable trusts can be used to protect assets when applying for Medicaid. Even though you have millions in dollars, by placing them in an irrevocable trust, you can become eligible for Medicaid. To understand how it works, let us first understand some concepts.

Countable assets

Countable assets are assets which are counted for the purpose of Medicaid eligibility. They include:

  • Bank accounts
  • Automobiles
  • Life insurance policy with cash value over $2, 5000.
  • Real property
  • Stocks and bonds
  • Certificates of deposit
  • Gifts made within 5 years of Medicaid application

Non-countable assets

  • The following assets will not be counted:
  • Retirement accounts
  • Home renovations
  • Life insurance with cash value less than $2,500
  • Real property (so long you do not receive rent payment from it)
  • Personal property, including furniture
  • Prepaid funeral expenses
  • Assets funded into an irrevocable trust 5 years before Medicaid application.

How do you protect yourself when applying for Medicaid?

People are often fond of taking proactive measures before applying for a Medicaid. And one of those proactive measures involves the protection of their assets. The main reason why people protect their assets before applying for a Medicaid is to ensure that they fall within the asset ownership limit as required by Medicaid.

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.

Bottom Line

Assets in your irrevocable trust are no longer counted as part of your estate because the trust is now the sole owner. So even when you have millions in it, they cannot be reached by nursing home costs, taxation, liens, or your creditors.

Although you can no longer use the assets for your benefit, you must name beneficiaries who the assets will go to when you pass away.

Your beneficiaries will inherit these assets easily and quickly without any probate, tax, or Medicaid asset recovery.

Contact us today

Do you want more information regarding a Medicaid? Or do you wish to protect your assets by setting up a Medicaid trust? Contact our office to speak with our Medicaid attorney.

DISCLAIMER: The information provided in this blog is for informational purposes only and should not be considered legal advice. The content of this blog may not reflect the most current legal developments. No attorney-client relationship is formed by reading this blog or contacting Morgan Legal Group.

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