Medicaid Asset Protection Trusts, sometimes called Irrevocable “Income Only” Trusts, are used to protect assets and allow people to qualify for Medicaid long-term care if needed. In order to protect the assets, the trust must be created 2.5 years before home care Medicaid is needed or 5 years before nursing home care is needed.
The Structure of a Medicaid Asset Protection Trust
An irrevocable trust created for Medicaid purposes must name someone other than the Grantor or the Grantor’s spouse as Trustee. The Grantor has the ability to remove and replace any trustee and retain a limited power of appointment which allows the Grantor to change the beneficiaries of the Trust. If the Grantor owns a home, he or she can retain the right to live in the home rent-free for their entire life.
The Grantor is not entitled to principal, or corpus, of any assets placed in an Irrevocable Trust. While the Grantor cannot use the principal of the Trust, he or she is entitled to all income (interest, dividends, etc.) that the Trust assets may generate. Since the Grantor must appoint a separate (non-spouse) individual(s) to act as Trustee of the Trust, it is the Trustee’s role, and not the Grantor’s, to invest the assets held by the Trust.
When an Irrevocable Trust is created, assets that the Grantor wants to protect are then retitled in the name of the Trust. This is what we call “funding the trust.” Assets include anything from a checking or brokerage account to the title of one’s residence. Individual Retirement Accounts do not get retitled into the name of the Trust since they are already protected for Medicaid purposes by law.
Often Grantors will place their home in the trust, some liquid assets, and name a child as trustee and not think about it for years. Most trusts provide that upon the death of the first spouse, the income interest continues for the benefit of the surviving spouse. At the passing of the surviving spouse, the assets are distributed to beneficiaries just as they would be in a will. An added benefit is that upon the Grantor’s death, the Trust does not go through the probate process and is instead administered without court intervention.
Deciding which estate plan is right for you will depend on the surrounding circumstances. No two clients are alike, which is why it is important to evaluate which plan best achieves your personal goals and alleviates your concerns.
– Michael Lipshitz, Esq. and Nancy Burner, Esq.