As we move through our lives, our health challenges tend to become more serious. Even if you have saved a substantial amount for retirement, you could easily see those savings eaten away by the cost of health care, especially long-term care.
Unfortunately, if you’re married, you could burn through all of your shared assets caring for just one spouse, leaving the other with nothing to live on.
We all want to pay our fair share toward our medical care, but it’s unreasonable to impoverish both members of a couple to pay for the care of just one.
Medicaid is a government program that can help pay for your care, but people only qualify if they fall below certain income and asset limits. However, there are some situations where you can retain some of your assets and still qualify for Medicaid. One of those situations is when you have set up an effective Medicaid trust.
Medicaid’s rules allow you to do this.
Advance planning is absolutely crucial. For a Medicaid trust or similar trust to work, you can’t put it in place at the last minute. It has to be something you’ve done at least five years before you need Medicaid.
What does a Medicaid trust do?
When you set up a Medicaid trust, you have an elder law or estate planning attorney help you identify which of your assets would be considered in a Medicaid application. Exempt assets are those that Medicaid doesn’t consider for the purpose of determining your eligibility. Non-exempt assets are those that Medicaid assumes you should use toward your care.
Some of your non-exempt assets could be moved into the trust, making them unavailable to Medicaid. Examples of some non-exempt assets include mutual funds, stock checking and savings accounts, retirement accounts and real estate other than your primary residence.
If enough of your non-exempt assets can be put in the trust, your qualifying income could fall below the Medicaid income threshold. This could make you eligible for Medicaid.
Important things to know about Medicaid trusts
As we mentioned above, you can’t put this trust in place at the last minute. Medicaid has what is called a “look back” period of five years. That means that any actions you have taken in the last five years to shield your assets won’t be effective. You have to plan in advance.
It’s also important to understand that Medicaid trusts are irrevocable, meaning that you can’t undo them or change the terms later. There is misinformation around indicating that you could accomplish the same objective with a revocable living trust, but those are not effective for Medicaid eligibility.
Finally, you cannot be the trustee of your own Medicaid trust. You will have to rely on a trusted individual or a professional trustee to act in your best interests.
If you are interested in a Medicaid trust or another type of trust that could help you protect your assets, ask an estate planning or elder law attorney. Be up-front about your intentions, and make this part of a larger estate plan.