Our elder law specific estate planning sometimes involves both a revocable and irrevocable medicaid asset protection trust to provide flexibility for the unknown future. One issue that comes up is when a client enters an assisted living facility is which trust can help pay the costs of the facility.
To illustrate: six years ago we drafted a revocable trust and an irrevocable trust for a couple. They transferred about $150,000.00 into the revocable trust and their house into each of their irrevocable trusts. They sold their home about three years later and deposited the $400,000.00 in proceeds from the sale into the irrevocable trust. Husband passed away and the surviving spouse decided to move to an assisted living facility. The daughter was named as Trustee of the irrevocable trust and thought she could use the money in that trust to pay for her mother’s care.
Luckily, the daughter called us first. The main reason we charge flat fees in estate planning is to encourage questions – some of these concepts can be difficult to grasp right away for both the grantors, trustees and beneficiaries – and we do not want clients keeping silent if they have questions or situations evolve. Although the daughter was not our client, we were able to explain her role as Trustee and remind her of the guidelines she had to follow.
The money in the irrevocable trust cannot be used to pay for the assisted living. In order for the irrevocable trust to be considered exempt for Medicaid purposes, it must provide that no principal distributions can be made to the grantor or on the grantor’s behalf. In other words, any distribution made from the irrevocable trust to the assisted living would violate the terms of the trust. Since the house was transferred to the irrevocable trust over five years ago, the money in the trust is protected in the event the surviving spouse ever required care in a nursing facility.
Even though the surviving spouse was in assisted living, it is still important to keep the irrevocable trust intact because she may need to be transferred to a nursing facility which would result at the rapid depletion of her assets. The average nursing home stay is $15,000.00 per month.
The money that is held in the revocable trust can be used to pay for the assisted living because mom maintains complete control over those assets during her lifetime. The revocable trust offers no assets protection with respect to Medicaid eligibility but can be freely transferred and the trust can be changed or revoked at any time. Spending the money in the revocable trust on the assisted living is allowable and also the better option as this money is not protected if mom requires care in a nursing facility.
In this case, the surviving spouse had full capacity and was able to consult with us and add her daughter as a co-trustee so that her daughter had ready access to the trust to help pay for the assisted living facility and other expenses on her behalf. If mom had not had capacity because she was suffering from dementia or a brain injury, she had named her daughter as successor trustee when she drafted the trust so her daughter could have taken over after providing two physicians’ letters documenting her mother’s incapacity.
Understanding the documents you or your family members have is imperative in order to make sure the maximum amount of protection is achieved during any health crisis.