Medicaid Asset Protection trusts
When planning for the cost of long-term care, it is possible to preserve your estate for your children or other heirs while still relying on Medicaid to pay for your long-term care in a skilled nursing facility. This type of planning generally involves the use of a Medicaid Asset Protection Trust. A Medicaid Asset Protection Trust is an irrevocable trust created for the purpose of protecting assets from being countable when qualifying for Medicaid for longterm care supports and services.
The problem with creating an irrevocable trust and transferring assets to the trust, is that you must give up control and access to the assets. Upon transferring the assets to the trust, you no longer control the assets, instead the Trustee of the trust does. You can pick who your trustee is, and often a child or trusted relative will act in this role. A trust is a legal entity under which one person — the “trustee” — holds legal title to property for the benefit of others — the “beneficiaries.” The trustee must follow the rules provided in the trust instrument.
An irrevocable trust is one that cannot be changed after it has been created. In most cases, this type of trust is drafted so that the income is payable to you the grantor during your life (the person establishing the trust). Typically, upon the death of the grantor, the trust terminates, and the principal of the trust is paid to your beneficiaries.
The trust must be drafted very carefully to make sure that it meets the necessary requirements to not be considered an available resource for Medicaid. It is important to understand that just because a trust is irrevocable, does not mean that it will be protected from being counted as an available resource.
You should be aware of the drawbacks to such an arrangement. It is very rigid, so you cannot gain access to the trust funds even if you need them for some other purpose. For this reason, you should always leave an ample cushion of ready funds outside the trust.
It is also important to know that the transfer of assets to the Medicaid Asset Protection Trust are still subject to the fiveyear look-back period. The five-year look-back period is the period for which the local County Assistance Office will review financial records to determine eligibility. If a gift or transfer was made, but that gift or transfer falls outside of the look-back, no penalty will be issued. In order to identify who has transferred assets, the state of Pennsylvania requires a person applying for Medicaid to disclose all financial transactions he or she was involved in during the five years before the Medicaid application. Any transfer can be scrutinized; however, generally only transfers over $500 will be questioned by the County Assistance Office. There is no exception for charitable giving or gifts to children or grandchildren. The burden of proof is on the Medicaid applicant to prove that the transfer was not made in order to qualify for Medicaid. If the County Assistance Office determines that a Medicaid applicant made a transfer for less than fair market value, it will impose a penalty period. This penalty is a period of time during which the person transferring the assets will be ineligible for Medicaid. The penalty period is determined by dividing the amount transferred by what Medicaid determines to be the average private pay cost of a nursing home in Pennsylvania.
If you are curious as to whether a Medicaid Asset Protection Trust is right for you and your family, it is important to speak with an Elder Law Attorney. This type of planning is very complex, and each individual situation is different.
The legal advice in this column is general in nature, consult your attorney for advice to fit your particular situation.
Rebecca A. Hobbs, Esquire is licensed to practice in the Commonwealth of Pennsylvania and is certified as an Elder Law Attorney by the National Elder Law Foundation as authorized by the Pennsylvania Supreme Court. She is a principal of the law firm of O’Donnell, Weiss & Mattei, P.C., 41 High Street, Pottstown, and 347 Bridge Street, Phoenixville,610-323-2800, www. owmlaw.com. You can reach Ms. Hobbs at rhobbs@owmlaw.com