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The Medicaid Trust

Many people are confused about whether they can qualify for Medicaid. They often don’t realize that, in New York, Elder Law attorneys can gain Medicaid eligibility for their clients, and protect their clients’ homes and money at the same time, using proper, time tested legal strategies. One of the best and most frequently employed strategies is the creation of a Medicaid Trust.

Individuals 65 years of age and older are eligible for Medicaid in New York if their resources (assets) are less than $15,150 (2018 figure).  Monthly income, whatever the amount, does not affect eligibility; however, a portion of the income may be subject to contribution towards the cost of care.

How is the Medicaid Trust used in Medicaid Planning?

A Medicaid Trust has a number of important features, the most important being that it is irrevocable.  Once the creator of the trust (also referred to as the grantor) transfers assets to the trust, those assets no longer belong to him or her, and are no longer subject to his or her control.  As a result, these assets cannot be counted as resources for Medicaid eligibility purposes.

In New York, transfers of assets to a Medicaid Trust are subject to the five year “look-back” if the grantor seeks Medicaid Nursing Home benefits, but they are not subject to the “look-back” if the applicant is seeking Community Medicaid (which includes Home Care or Assisted Living).

Does the Medicaid Trust have other features and benefits?

Yes, several important ones.

First – safety.  Your home and your money and investments are protected in the trust.  They no longer belong to you, and therefore are not subject to recovery by Medicaid or the claim of any other future creditor.   Once in the trust, the assets belong to the trust.  The assets are no longer exposed to the risks that exist when they are held by a natural person (such a child, sibling, or friend).  Those risks include death, divorce, liability for accidents or business obligations, and other claims that can be made against those individuals.

Second – management.  The assets in the trust are managed by a trustee named by the grantor.  Usually the trustee is a child or children of the grantor, a family member, or a close friend.  The trustee may be assisted by professionals, such as financial advisers or accountants.  The trustee may be given discretion to distribute assets to family members during the grantor’s lifetime.

Third – income.  The income from investments made by the trust is paid to the grantor.  This is without prejudice to the Medicaid eligibility of the grantor.

Fourth – the estate plan.  The Medicaid Trust will contain the grantor’s estate plan with regard to the assets held by the trust.  Since the grantor’s original goal was to become eligible for Medicaid, in most cases virtually all of the grantor’s assets will be held by the trust.  Since the assets are owned by the trust, they are not subject to probate or administration.  In other words, nobody needs to go to court for approval of distributions to beneficiaries of the trust.  Distributions can be made efficiently and privately.  In addition, a “power of appointment” can be included in the trust, which allows the grantor to change the ultimate beneficiaries of the trust.

Fifth – protection of tax benefits.  The ultimate beneficiaries of the trust will not have to pay capital gains tax on any unrealized gains that accrued during the lifetime of the grantor.

Sixth – the home.  Your home can be owned by the trust, and be fully protected in the same manner as any other type of asset.  The trust can give you the right to live in your home for the rest of your life.

In Conclusion

Creating a Medicaid Trust might be one of the best decisions you have ever made.  When done correctly, the Medicaid Trust will give you access to New York’s generous Medicaid benefits, protect your home and your money, and provide you with an extremely effective estate plan.  Your Elder Law attorney can advise and assist you with all of the issues involved.  Please feel free to contact Lamson & Cutner, P.C., for more information.

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