skip to Main Content

This is Strategy #13 from Lamson & Cutner’s publication, “25 Strategies to Prevent Financial Ruin from Long-Term Health Care Costs.” Click here to see the other strategies.

When an applicant for Medicaid decides to transfer assets into a trust, the trust must be irrevocable. That means you no longer have control of whatever money or assets you place in it. If you could control them, that would indicate they’re still yours, and Medicaid would therefore insist that you use the funds to pay for your care.

You’ll appoint a trustee (most frequently, your child/children, a sibling or other family member) to manage the trust and make decisions on investing and disbursing your funds. Most frequently grantors choose their child/children, a sibling or other family member, but it is their choice. Choose someone who you are confident has your genuine best interests and welfare at heart. To use an analogy, a trustee is like the president of a corporation. He or she is the boss. If you’re going to put your money in a trust, better pick somebody you can count on.

Control is a big issue for many people, especially if they’re currently in good health and have full mental capacity. However, if you become ill and need home or nursing facility care, you can either put the money into a trust or potentially lose all of it. You’ll forfeit the money without appropriate asset protection planning, because under Medicaid regulations all but a small amount of your resources will go to pay for your care. You’ll rapidly deplete your financial base and very possibly end up with nothing.

Considering these factors, you’ll be in a better position with a trust strategy and appointing a trustee you have confidence in. There are legal restrictions on all trustees, and there aren’t many who would want to run the risk of stealing your money.

In some families, people are not comfortable turning over control of their money and property to a relative or friend, for a variety of reasons. Certainly, if the person you have in mind doesn’t have a history of being responsible, it’s not a good idea to make him or her your trustee.

If you can’t rely on your relatives or friends, you may be able to hire a professional trustee. Retaining a professional trust company is also a good way to avoid conflict in a family, and break a deadlock when there’s an argument or concern about who will be the trustee. In addition, trustees have strict legal and fiduciary duties, so you can depend on a professional to have a better understanding of what the law requires. Of course, you’ll have to pay a professional trustee. A typical fee would be in the vicinity of 1% of the value of assets managed per year.

We represented a client who unfortunately had very strained relations with two of her three children. The third, a son, was very devoted to her, and had watched over her. The client had to enter a nursing facility for rehabilitation after sustaining a head injury. Although she eventually recovered to a point where it would have been feasible for her to return home, she elected to stay as a permanent resident. Her assets were moved to a protective trust and her son was made trustee, as he was the only one she felt comfortable with managing her significant resources.

We filed a Medicaid application to cover the cost of her nursing home care, and initiated additional planning strategies. The application was approved, providing full payment of the nursing home’s services, while a significant portion of her financial reserves have been protected. Her son can now use these funds on behalf of his mother as needed, making her stay there more pleasant. After she passes on, whatever is left can be distributed to her heirs, which would not have been possible without this asset protection planning.

Back To Top