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With medicaid planning, you can preserver your estate for your children, while still qualifying for the medicaid asset limit. The problem with transferring assets is you have to give them away. You cannot control them. The BEST alternative is to put them in an irrevocable trust. The trustee, holds the property for the benefits of the beneficiaries. The trustee of the trust must follow the rules which were provided in the trust. Based on the rules of the trust, the trust assets could – or could not – be counted against the Medicaid resource limits. Revocable trusts – are trusts which can be changed, or rescinded, by a person who created it. Medicaid counts the assets in such assets when determining medicaid eligibility. As a result, revocable trusts cannot be used when doing medicaid planning.
An irrevocable trust is one which cannot be changed after it’s granted. This type of trust is drafted so the income is payable to you, and the principle cannot be applied to benefit you, or your spouse. At your death, the principal is paid to your heirs. As a result, the funds in the trust are protected, and you’re able to use the income from the trust for your living expenses. When it comes to medicaid, the principal is in a trust – and is not counted as a resource against you. If you move to a nursing home, the trust income will have to go to the nursing home. At your death, the principal goes to your heirs. The funds are kept in the trust in a manner so that the income can be used for living expenses. But the principal is not counted as your resource.
The issue with this arrangement, is that it’s rigid. You cannot gain access to the trust funds, even if you need them. As a result, you need to plan in a manner so that you have funds outside the trust.
You can also choose to place your property in a trust, where the payment of income doesn’t go to you. Instead, the trust can be setup so the income goes to your children, or someone else. One of the benefits of using these trusts is that if they contain property – and the property increases in value, then you – can retain special testamentary power of appointment – so that the beneficiaries receive the property with a stepup in basis at your death. This prevent you having to file a gift tax return upon funding the trust.
Funding an irrevocable trust can prevent you for being eligible for medicaid for the next 5 years.
These are trusts created under a will. Medicaid rules, provide a special “safe zone,” for testamentary trusts created by a deceased spouse for the benefit of the remaining spouse. The assets in these trusts are available to the medicaid applicant, to the extent that the trustee has the obligation to pay for the applicant’s support. If the payments are solely at the trustee’s discretion, they are considered unavailable. This type of trust provides a method for spouses to leave funds for their surviving spouse, for services not covered by medicaid. This means extra therapy, equipment, legal fees, transfers to another nursing home, etc. If you create a trust for yourself, or your spouse during life, then the trust funds are considered available if the trustee is able to use them for you/your spouse.