Medicaid Trust Rules
- A Medicaid Trust is an option for older persons planning their financial future, according to the Free Living Trust Information website. When contemplating the costs of nursing home care, a Medicaid Trust can be beneficial. In a Medicaid Trust, assets are actually placed in an irrevocable trust in which you lose any legal control or interest.
- Basically an asset protection trust, an irrevocable trust (Medicaid Trust) is created by a person (trustor) to protect his assets, according to the Karp Law Firm website. The trustor then appoints a trustee (not a spouse or other close relative) to manage the assets. Even though the trust remains irrevocable the trustor can instruct the trustee in the managing of the assets and even replace the trustee if he fails to control the trust to the trustor's satisfaction. All of the income from the trust, not the principal, is payable to the trustor and even to the trustor's spouse if so designated. Gifts from the trust can be paid to the trustor's children at his discretion. Upon the death of the trustor, all trust assets pass directly to the heirs with no probate necessary.
- The purpose of a Medicaid Trust is essentially reducing reportable assets and income to a level that meet the qualifications for Medicaid. A Medicaid Trust needs to be established well in advance of the need for Medicare because of the current "look-back" rule of five years. This allows any assets transfers occurring within that five year period to be under scrutiny when determining eligibility for Medicaid. Therefore in order for a Medicaid Trust to be beneficial it must be created at least five years before the need for any Medicaid funds.
- While no one can predict the future, planning ahead financially is always a good practice. Medicaid Trusts are definitely an option to reduce reportable assets and thus qualify for Medicaid when the time arises. However, when U.S. Congress passed the Deficit Reduction Act of 2005, the "look-back" rule in determining gross assets for Medicaid was changed from three years to five years. This complicated the Medicaid Trust concept, according to the free-living-trust-information website. Consequently, when looking to set up an irrevocable trust (Medicaid Trust), it is best to consult with an attorney to keep abreast of current Medicaid laws and requirements.