A Medicaid Trust is the name Elder Law attorneys give to trusts that we use to facilitate Medicaid eligibility. It is an irrevocable trust. When you transfer assets to this type of trust, the assets do not belong to you anymore. You don’t and can’t control them. Therefore, the assets in the trust are not countable resources in determining whether you are eligible for Medicaid.
There are several other advantages as well. First of all, these trusts are sometimes called “asset protection trusts,” because they protect your assets against the claims of all future creditors you may have, including Medicaid. Because the assets in the trust no longer belong to you, your creditors cannot reach these assets.
The trust will contain a complete estate plan regarding the assets in the trust. You’ll decide who will receive the assets upon your death, much the same as would in your Last Will and Testament. However, unlike your Will, the trust does not have to be presented to a court. There is no probate. Everything under the trust is handled privately, without notice to anyone who is not involved, and without court intervention. If your assets are in a trust, your estate can be administered very quickly and at very little cost.
When they inherit assets from your trust, your beneficiaries will benefit from tax laws that give them a “step up in basis” which will allow them to avoid capital gains tax on the appreciation in value of your assets that accrued during your lifetime.
Also, while you cannot control the assets in the trust, there are other important rights that you can retain. For example, you can retain the right to all of the income earned by the trust, and this will not affect your eligibility for Medicaid.
If you transferred your home to the trust, you can retain the right to live in it for the rest of your life . . . even though you don’t own it anymore.
You can also retain the right to change the beneficiaries of the trust, by a provision in your Last Will and Testament. So, if circumstances change, and you want to add or delete a beneficiary of the trust, you can do it.
From my perspective, the Medicaid Trust is all upside, with no downside. It is certainly worth considering, especially if you own a home or other substantial investments.