What to do with the proceeds from the sale of a property in a Medicaid Asset Protection Trust

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When residential property is owned by a trust, the trustee may sell the property if the terms of the trust permit it. The trust would be the seller of the property and the trustee must sign the listing agreement, contract of sale and closing documents. Upon closing, the net proceeds from the sale are payable to the trust and the trustee handles opening a trust bank account if one does not already exist. The trustee would then deposit the net proceeds into the trust bank account.

Many people transfer their homes to an irrevocable trust to protect the asset for purposes of qualifying for Medicaid long term care. Medicaid Asset Protection Trusts typically provide that the creator of the trust (the Grantor) receives income from the trust, but not principal. Also, Grantors reserve the right live in any residential property owned by the trust during their lifetime. After the death of the Grantor, the assets either continue for the life of a spouse or pass to the trust beneficiaries.

If a home owned by a Medicaid Asset Protection Trust is sold, the Grantor is not entitled to the proceeds from the sale. But, if the Trustee invests the proceeds from the sale, the Grantor could collect any interest or dividends generated. A Trustee cannot deposit the sales proceeds in any other type of account – to maintain protection the proceeds must be deposited in the name of the irrevocable trust. A Trustee of such a trust can purchase a new residence for the Grantor, which the Grantor has the same right to reside in for their lifetime.

Note that if the terms of the trust are violated, any assets inside the trust are no longer protected for Medicaid purposes. For most people their home is the most significant asset in their Medicaid trust. Thus, it is very important to consult an experienced elder law attorney whenever selling or spending trust principal.

At the Grantor’s death, the Trustee must distribute the assets held in trust according to the trust beneficiaries. It is advisable for the trustee to account to the trust beneficiaries and have them sign a receipt, release and refunding agreement before making any distributions of the trust funds. This releases the Trustee from any liability for their actions as trustee. A Trustee should seek out an experienced trust attorney to help prepare the necessary documentation.

Burner Law Group, P.C.

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