Why a Revocable Living Trust Can Affect a Medicaid Spend Down

A revocable living trust can be a useful tool when it comes to estate planning but does not protect assets from a Medicaid spend down. Generally, a revocable trust is one of the more flexible instruments within estate planning as it allows a trustor to amend the provisions of the trust, remove assets, or revoke the trust entirely. However, while this flexibility may appeal to trustors seeking to receive an income from the trust and transfer its assets to beneficiaries, it may hinder eligibility for a Medicaid spend down. Funds and assets placed within a revocable living trust are still considered to belong to the trustor, even if they have appointed beneficiaries. Therefore, as the property of a Medicaid applicant, those funds and assets can be counted in a Medicaid spend down. There are a number of estate and financial planning strategies that can be beneficial under certain circumstances, but when it comes to Medicaid eligibility, these same strategies can become an impediment to qualifying for the program. At Morgan Legal Group P.C., our Medicaid planning attorneys have the legal expertise needed to ensure that a client’s advanced planning techniques are compliant with Medicaid’s standards and regulations.
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If you have a revocable trust and are considering applying to Medicaid, reach out to our Medicaid planning attorneys at Moran Legal Group, P.C. We’ll assist with implementing the right planning strategies that will protect your assets and allow you to utilize a Medicaid spend down.
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Across each state, Medicaid is operated differently within the parameters set by the federal government. However, the central aim of Medicaid is to provide healthcare coverage for individuals with low incomes and few financial resources. With this objective, Medicaid has established stringent eligibility policies. Indeed, applicants looking to qualify must be near the federal poverty level to be eligible. For people whose incomes or assets exceed Medicaid’s limits, a Medicaid spend down can be implemented. Just as with the Medicaid program, a Medicaid spend down functions differently in each state. In New York, a Medicaid spend down allows prospective applicants to deduct medical expenses from their income in order to qualify. However, in order to be eligible for a Medicaid spend down, an applicant must be 65 years of age or older or disabled, have high health care expenses, and have below $15,750 in assets―these can include financial accounts, stocks, bonds, or retirement accounts.
A revocable living trust is a popular tool within estate planning. Individuals are more inclined to utilize a revocable living trust as it provides an income source and direct asset transfers to beneficiaries upon the trustor’s death. In addition, a revocable trust leaves room for flexibility. A trustor may modify the terms of the trust, remove assets, or terminate the trust altogether if they wish. Maintaining a revocable trust can be costly, and there are many steps involved to have one created. In addition, it is imperative to understand that any funds or assets placed within a revocable trust are not protected from creditors. This is because a revocable trust can be altered at any time by the trustor. As such, the items placed in the trust are still considered to be owned by the trustor. This is also an important point to keep in mind when looking to apply to Medicaid as the program can count funds and assets in a revocable living trust towards an applicant’s income and asset limit.
A Medicaid spend down is designed to assist people of modest means to qualify for Medicaid by reducing their income and assets through certain deductions. Medicaid’s eligibility requirements are strict, and a Medicaid spend down comes with eligibility requirements of its own. In the state of New York, those seeking to utilize a Medicaid spend down must be at least 65 or disabled, have high medical expenses, and have assets valued at less than $15,750. For the purposes of a Medicaid spend down, assets are considered to be any financial resources in the form of financial accounts, stocks, bonds, and retirement accounts. Here is where a revocable trust can become an impediment to qualifying for a Medicaid spend down, and in turn, Medicaid benefits. Because the funds and assets placed within a revocable trust are still under the ownership of the trustor, Medicaid can and does consider them to be countable towards an applicant’s income and asset limit. As such, a revocable living trust will neither safeguard a person’s assets nor provide a pathway to eligibility for a Medicaid spend down.
When it comes to applying to Medicaid programs, there are a number of eligibility standards and requirements that must be strictly adhered to. Deviating from these prerequisites even slightly can lead to an applicant being turned down for eligibility. Many applicants erroneously believe that the same strategies they apply to estate planning can be implemented to qualify for Medicaid, but this is simply not the case. For example, revocable living trusts are sound tools for a strong estate plan but can be accessed by Medicaid in determining whether an applicant exceeds the program’s income and asset limit. An alternative to a revocable trust is a Medicaid Asset Protection Trust (MAPT). This type of trust is Medicaid compliant. A MAPT allows for applicants to safeguard the funds and assets they place within the trust from being accessed and counted towards Medicaid’s eligibility thresholds. One important note to consider with MAPTs is that they must be created at least 5 years prior to the time a person submits their Medicaid application. Establishing a MAPT immediately before applying to Medicaid can result in a penalty period.