Lots of people often come up with the question regarding what differentiates a Living Trust from a Medicaid Trust. While both kinds of trust have great similarities, they still have quite distinctive features. But what we’re concerned with in this article is the Medicaid trust Long Island.
Whereas a Living Trust is a revocable trust (easily reversible or terminated), the Medicaid Trust is irrevocable. In a living trust, you place your asset(s) in the management of whoever you appoint as your trustee. Your trustee could be your adult, relative or friend. You can include any asset into a Revocable Living Trust or take anything out of it at anytime. This is often associated with nursing homes.
On the other hand, Medicaid Trusts are set up mostly by people who wish to bypass the costs and risks which their assets are exposed to when they’re placed in nursing home care due to age or infirmity. When people get older, they try to think about and plan towards how best to protect their assets should they become incapacitated. Their are many options available but the big question is “what option best suits my aging needs?”
Long-term care insurance is a good way to protect your asset but the cost is on the high side and some people may not qualify for it. Another option is transferring your property wholly or in part to your beneficiaries (most probably your children) but the downside to this is, what happens when something bad happens to that beneficiary? Divorce or bankruptcy could be the case, or they may be charged to court. Although vile to imagine, one’s child may even die before him, and then you’d lose your assets just like that. Or they may even refuse to give you back the asset since you’ve already transferred it into their ownership. For that reason, creating an irrevocable Medicaid trust is the ideal solution.
With the Irrevocable Medicaid trust, you fully protect your asset because whatever asset you transfer into the trust is owned by the trust and not available for your care. Whoever you name as trustees – be it your spouse or children – are merely managers and not owners of the property and cannot use or spend it however they so desire. They are only obligated to do as the terms of the trust demands, terms which you’ve written to protect your own interests. An advantage of having a Medicaid trust is that you’re entitled to the income of the asset.
How a Medicaid Trust protects your assets from a nursing home
The Medicaid Trust does this in two ways which the nursing home cannot get through.
- Firstly, it gives you the power to name a trustee (the person to manage the property on your behalf) besides you, which could be your spouse, children and/or any other trusted friend or relative. Worthy of note is the fact that you still maintain full control of your property in that you can change your trustee at anytime. Should there be a dispute or asset abuse coming from your trustee, you could easily replace them. By so doing, you protect you asset from abuse even when you can’t manage them yourself.
- It limits your rights to only the income gotten from the asset. For this reason, a Medicaid trust is often called an “income only trust”. For a stock, you get only the dividends, and a house, you are only entitled to live in it, or if its a rental you are entitled to the rents. Just like a living trust, whatever property you place in a Medicaid trust will go directly to your named beneficiaries when you die with the avoidance of probate and estate taxes.
It is true that you can only take income and not the principal out of a Medicaid trust. But if you really desire to take principal out — possibly by selling the asset — you could instruct your trustee to make it happen by stating it in the trust. You could simply instruct the trustee to sell the asset and give you the money. Another way to enjoy principal alongside income is by gifting the principal to someone else, while that person will in turn spend the principal on you.
While all these sound easy, they have a strict legal undertone. For that reason, before creating a Medicaid trust Long Island, ensure you seek the esteemed services of a competent Elder Law Attorney in Long Island to avoid costly mistakes. Also know that an irrevocable Medicaid trust Long Island can only be revoked when all the parties (trustees) involved are in agreement to have it revoked.