 |
Medicaid Irrevocable Trust &
5-year Look-Back Period
Protecting assets from the Medicaid Rules
Placing assets into an irrevocable trust is the best strategy. It not only protects family assets from creditors, it also eliminates the countable assets for Medicaid eligibility purposes and hence accelerates the time when Medicaid benefits can kick-in.
An irrevocable trust is a legal structure that cannot be amended or undone once signed into existence. It is a structure recognized by Medicaid administrators as being validly used by families to protect assets from the nursing home spend-down.
Establishing an irrevocable trust and placing a portion of family assets in that trust is an effective strategy for protecting those assets from creditors. Those assets remain ring-fenced beyond the reach of creditors. It is not unusual to transfer the major portion of family assets into the trust, even the family house, so as to leave only a small amount of assets outside the trust.
A transfer into an irrevocable trust can be considered a gift for Medicaid eligibility purposes. This gift status/condition works as a significant negative for people applying for Medicaid assistance. In particular, both "penalty period" and 60 months "look-back period" rules apply.
For example, assume a new irrevocable trust is created and $200,000 is transferred into that trust so as to leave only a minimal amount of family assets outside the trust. This structure is created on 1 January of Year 1. The state of residency of the trust beneficiaries has a "penalty divisor" of $5,000, meaning there is a one month penalty period for every $5,000 of gift value.
In this scenario, let's assume the penalty period is 40 months, calculated as $200,000 / $5,000 = 40. The penalty period will begin to apply any time within the so-called look-back period. For any gift made on or after 8 February, 2006, the look-back period extends for 5 years. So if a trust beneficiary applies for Medicaid at any time before 2 January of Year 6, the trust beneficiary will be confronted with a 40 month penalty period, or self payment period, that begins on the date an application for Medicaid assistance is made, but is pro-rated. To repeat, the penalty period begins from the date an application for Medicaid assistance is lodged. So if the application for assistance is lodged six months into Year 5, the trust beneficiary will need to wait {$200,000 x (4.5 / 5)-1} / $5,000 or 4 months from that time before being eligible for Medicaid assistance. This example highlights the need to plan and establish an irrevocable trust well ahead of the time Medicaid assistance is expected to be needed for the most comprehensive protection.
If the beneficiary needs nursing home care during the 5 year look-back period and there are no funds available to pay for that care because they have all been placed in the trust, a common tactic is for other family members to finance that interim care. It may be possible to draft the trust deed so as to allow the trust to distribute income to those family beneficiary members to cover for this eventuality.
A Medicaid irrevocable trust is a binding, rigid structure for the outside world and relatively flexible for the beneficiaries when drafted correctly. If assets placed in the trust are suddenly needed, they will be difficult to access by outside creditors, but the assets can be accessed by the beneficiaries if implemented properly. Thus, it is critical to have an expert do the trust writing and in some instances, maintain some assets outside the trust. Trust assets will no longer be owned by the person that established the trust, although they may still receive the benefit of the assets as a beneficiary. They will, in time, upon the grantors death, transfer to the beneficiaries in accordance with the terms in the trust.
Read more articles on irrevocable trust asset protection:
- Irrevocable Trust Tax Benefits
- Irrevocable Trust Benefits
- Ultra Trust® Irrevocable Trust
- Irrevocable Trust Divorce
- Irrevocable Trust Agreement
Read articles on irrevocable trusts and senior elder care visit:
- Medicare: elder care
- Asset Protection from Medicaid
- Hide My Assets Medicare
- Protect Assets Nursing Home Costs
- Nursing Home Spend-down Program
- Medicaid Estate Planning
Managing Director, Estate Street Partners, LLC
Mr. Beatrice is an asset protection, award-winning trust and estate planning expert.
Estate Street Partners, LLC
Uncompromising, Alternative and Exclusive Estate Planning & Wealth Management for an Accelerated Chartered Roadmap to Financial Success
71 Commercial Street #150, Boston, MA 02109
toll-free: 888-93-ULTRA (888-938-5872)
tel: +1.508.429.0011 fax: +1.508.429.3034
Only by appointment: 2235 E. Flamingo Road, Suite 201-G, Las Vegas NV 89119
toll-free: 888-93ULTRA (888-938-5872)
tel: 702.615.7616 fax: 702.796.6694
