Southwest Florida's Health and Wellness Magazine Health and Wellness Articles
By Steven J. Gibbs, Esq.
Hello Friends & Colleagues!
Today’s hot topic, brought to you in honor of “heat awareness month”, concerns a common misunderstanding about the usefulness of an Irrevocable Medicaid Trust (a/k/a Medicaid Asset Protection Trust) as a tool for Medicaid planning purposes. Many people believe that these trusts offer a real benefit when it comes to planning how to pay for long term medical care expenses and qualifying for Medicaid benefits. However, the unfortunate truth is that an Irrevocable Medicaid Trust has a very limited function under today’s Medicaid rules, which changed in 1993, and became even more strict after the enactment of the 2005, Deficit Reduction Act (“DRA”).
This is the subject of this week’s article…
It Used To Be That An Individual Could Place Assets In A “Medicaid Qualifying Trust” In Order To Keep Assets And Qualify For Medicaid As Long As That Person Did Not Have The Right To Control The Trust Assets; However, This All Changed After 1993.
Prior to 1993, the Assets Placed in the Medicaid Qualifying Trust Would Not Automatically Be Deemed “Countable Assets” for Purposes of Determining Eligibility for Medicaid, and There Was No Transfer Penalty Thus Making These Trusts Very Useful.
Generally, prior to 1993, irrevocable Medicaid trusts were upheld to protect the assets, provided the applicant had no control over the assets or the assets were being preserved for other beneficiaries. However, if the Medicaid applicant was both the trustee and beneficiary of the trust, and distributions to the beneficiary were allowed in the discretion of the trustee, the assets would be viewed as if there was no irrevocable life trust, and the individual could be disqualified. So, back in the good old days, this strategy was a way to protect assets for family members while allowing Medicaid qualification without any transfer penalty; provided, these irrevocable Medicaid trusts had to be skillfully drafted to avoid disqualification.
All of the above changed after 1993. The updated Medicaid rules provided that any asset that could have been given to another beneficiary (i.e. family member) would be treated as a “countable” resource if the Medicaid applicant would be entitled to any distribution of the assets. If the Medicaid applicant was deemed to not be entitled to any distribution of the assets, then a transfer penalty would apply as if they had made an outright transfer. Remember, Medicaid is a “need based” program with “spend down” requirements, so countable assets will disqualify or penalize the applicant from receiving benefits.
There are a couple of exceptions under the DRA which allow a transfer of assets to an irrevocable trust without a transfer penalty which are as follows.
First party “Special Needs Trusts” for an individual under the age of 65 will not result in a transfer penalty and will not be deemed a countable asset for determining Medicaid qualification. For more information about “first party” special needs trusts visit our blog at gibbslawFL.com.
Pooled trusts or group trusts that are independently administered for the benefit of anyone regardless or age.
Special needs trusts are used as a supplemental fund and must also be specifically drafted to avoid disqualification from Medicaid and/or SSI benefits.
With all of this having been said, there may still be advantages to establishing a Medicaid Asset Protection Trust for loved ones.
if the transfer of assets was made outside of the look-back period and the applicant has no right to distributions, this creates an asset protected account for family members that may be favorable to an outright distribution. Because asset protection is important in today’s litigious society, there is then still a valid purpose for establishing a Medicaid Asset Protection Trust. In my opinion, the value attributes primarily to the Medicaid applicant’s family rather than the applicant, and in any event, the look-back period is always looming. For more information read our blog article about the importance of an asset protection.
It is also very important to remember that a transfer to a Revocable Living Trust offers no Medicaid protection as discussed in our blog post comparing Revocable verses Irrevocable Trusts.
I hope this is helpful by providing a bit more clarity about this relatively common misnomer and as always…
I hope this is helpful.
Steven J. Gibbs, Esq.
Gibbs Law Office, PLLC
8695 College Parkway #2330
Fort Myers, Florida 33919
Phone: 239-415-7495
Fax: 239-243-9029
Email: info@gibbslawfl.com
