Does An Irrevocable Trust Protect Assets From Medicaid?

Expensive is a gentle way to explain the costs of long-term care in a nursing home. In 2020, the average price of a semi-private room was nearly $8,000 a month, with a private room running on average almost $9,000 per month. Monthly Social Security payments come nowhere close to taking care of long-term care costs. What is the answer for the money gap between Social Security payments and long-term care expenses?

For standard health care, Medicaid eligibility is about personal income. However, this changes regarding long-term care, which includes personal assets in the mix. In 2021, you qualified for Medicaid if you earned less than $2,382 per month and had countable assets worth less than $2,000. Countable assets include vehicles, property, securities, bank accounts, and certificates of deposit.

Transferring assets to beneficiaries is a common financial strategy for people who want to preserve their assets for future generations. However, when it comes to transferring assets to reduce countable assets for Medicaid eligibility, states invoke what is called a look-back period to determine eligibility. State governments want to know whether any assets sold for less than fair market share and were gifted, transferred, or given away.

Every state but California looks back 60 months. The Golden state looks back 30 months.

The key to limit your countable assets for Medicaid is to turn the countable assets into non-countable assets. For example, you lower your countable assets by taking cash and putting it into a retirement plan.

With an irrevocable trust, an assigned trustee manages the assets inside the trust. You cannot touch the assets nor make changes to how the trust is managed. The day you form an irrevocable trust and move your assets into it, what were once countable assets are now considered uncountable assets. However, because the uncountable assets are legally considered a gift, the assets come under the look-back period's legal process.

Assigning a trustee to manage your assets can seem a risky venture, but the trustee cannot use your trust as their own piggy bank. They must act in your best interest. Regardless, it’s still best if you have confidence in the person you choose to become the trustee.

An irrevocable trust can prevent your assets from being distributed because of Medicaid Estate Recovery. Since your name is not associated with an irrevocable trust, the protected assets cannot be used for the Medicaid Estate Recovery program. This program is sometimes referred to as a death tax and is a frequent occurrence than the more commonly feared estate tax.

Protecting your assets within an irrevocable trust can help you qualify for Medicaid assistance, which is an essential consideration for paying long-term care bills. However, you face other issues that might make an irrevocable trust the wrong financial step to take. Our team of experienced family law attorneys can help you make the best decision for you and your family when it comes to forming an irrevocable trust. We can also assist you with transferring countable assets into an irrevocable trust.