This is Strategy #8 from Lamson & Cutner’s publication, “25 Strategies to Prevent Financial Ruin from Long-Term Health Care Costs.” Click here to see the other strategies.
There’s nothing mysterious about trusts – and they’re not only for the wealthy. A trust is a legal structure that is specifically designed to protect income and assets that would otherwise be lost under Medicaid regulations. Trusts are among the main workhorses of Elder Law planning, and some of its most powerful tools.
An example that demonstrates the function of a trust is as follows: Let us hypothetically say you own a home, condominium, or cooperative apartment worth $500,000 in today’s market. You bought it 40 years ago for $35,000, and your loan is paid off. Now you need long-term care. Your home is an exempt asset for eligibility purposes while it is your primary residence. However, Medicaid may still gain access to every penny of the equity in your home, by enforcing a lien against your property once you move out permanently (for example, if you move to a nursing home), or if you pass away. The amount of the lien will be equal to the amount of money Medicaid paid for your care.
Costs for long-term care are exorbitant. That means after just a short time, the equity in your home could be exhausted by the amount of the lien Medicaid may eventually be able to enforce. In effect, you’ll be leaving your home to the government to repay Medicaid, instead of to your loved ones.
A trust strategy eliminates the entire problem. By transferring your home to a trust, you are no longer the owner. Instead, the house will legally belong to the trust. As a result, your property is safe from being subject to a Medicaid lien. (Of course, transfers within the look back period will still be subject to a penalty. See Strategy No. 3.)
In many instances, parents want to leave homes to children in their Wills. Using a trust can be a better vehicle than a Will for this purpose. That’s because the trust not only helps you to achieve Medicaid eligibility; it also protects your home’s value.
Your home can eventually be transferred to your children, rather than be lost to the government. Importantly, you also do not have to move out of your home. This is because you are permitted to state in the trust that you have a legal right to live there for the rest of your life. The beneficiaries of the trust can be the same people named in your Will.
It’s important to know that implementing trust strategies for Medicaid planning is a complex process. Every client’s situation has individual characteristics and critical differences, which is why you need a qualified Elder Law firm to make a competent evaluation.
The firm will complete a comprehensive assessment of your unique situation, and once the firm’s assessment is complete, your Elder Law attorney can draft a trust that is appropriate for you. You then simply appoint a person to manage the trust, usually one of your children, or a relative or friend, who is referred to as the trustee. Professional trustees are also available for hire if there’s no one you feel completely comfortable with.