Medicaid Asset Protection Trusts - What are they, and when do you need one.

Mr. Steven Mueller, Managing Partner

Medicaid Asset Protection Trusts can be a valuable planning strategy to meet Medicaid’s asset limit when an applicant has excess assets. Medicaid Asset Protection Trusts enable someone who would otherwise be ineligible for Medicaid to become eligible and receive the long-term care they require, be that at home or in a nursing home.

Simply stated, these trusts protect a Medicaid applicant’s assets from being counted for eligibility purposes, as assets put into this type of trust are no longer considered owned by them. They also protect assets for one’s children and other relatives, which is a win-win for Medicaid applicants and their families. Medicaid Asset Protection Trusts are also called Medicaid Planning Trusts, Medicaid Trusts, or less formally, Home Protection Trusts.

There are many different types of trusts and not all of them are Medicaid compliant. For instance, Family Trusts, commonly called Revocable Living Trusts, are different from Medicaid Asset Protection Trusts. Generally, Family Trusts are not adequate in protecting money and assets from Medicaid because the language of the trust makes it revocable, which means the trust can be cancelled or altered, or allows for money in the trust to be used for the Medicaid applicant’s long-term care costs. Therefore, assets in this type of trust would have to be “spent down” to meet Medicaid’s asset limit.

While there are several other types of trusts that are relevant to Medicaid eligibility, our focus in this segment is Medicaid Asset Protection Trusts. Irrevocable Funeral Trusts, also known as Burial Trusts, are commonly used to protect assets for funeral and burial costs. There are also Qualifying Income Trusts, also called Qualified Income Trusts. I mention this to avoid confusing Medicaid Asset Protection Trusts with Qualifying Income Trusts. While Medicaid Asset Protection Trusts protect one’s assets and allows them to meet the asset limit, Qualifying Income Trusts allow one who is over the income limit to become income-eligible for Medicaid purposes. Many states do not allow Qualifying Income Trusts, and I have listed those at the bottom of the page.

Important note here in California, California Medicaid, known at Medi-Cal, eliminated their asset limit effective January of 2024. Medicaid applicants can have unlimited assets, and therefore, Medicaid Asset Protection Trusts are not relevant for one to qualify for Medicaid in California.

While each state runs its Medicaid program within federally set guidelines, there is wiggle room for each state to set its own rules within those larger guidelines. Generally speaking, the asset limit for an elderly individual applying for long-term care Medicaid is approximately $2,000. This asset limit can be lower or higher depending on the state in which one resides.

While some higher valued assets are usually considered exempt, such as one’s primary residence, a vehicle, and wedding rings, too often put an application over the asset limit. Therefore, any assets that exceed the asset limit need to be spent down or a planning strategy, such as a Medicaid Asset Protection Trust, needs to be put into place to help the applicant qualify for the care they require.

To get a better grasp of Medicaid Asset Protection Trusts, one must understand the associated terminology. The individual who creates the Medicaid Asset Protection Trust is called a Grantor. There is a Trustee, who manages the trust and controls the assets within it. The trustee must be someone other than the Grantor or their spouse, such as one’s adult child or another relative. The Trustee must adhere to trust rules, which are very specific as to how trust funds can be used. For instance, it should be strictly prohibited for funds to be used on the Trustee. A Beneficiary is also named and is the person who will benefit from the Trust after the Grantor passes away. For the Trust to be Medicaid exempt, the beneficiary must be someone other than the Grantor. If the Grantor were also the Beneficiary, they would have access to the assets, and Medicaid would consider them available to pay for their care and supports.

The Trust must be Irrevocable for exemption from Medicaid’s asset limit. This means that once the Trust has been created, the terms of the trust cannot be cancelled or changed. Once the assets are transferred into the Trust, they no longer belong to the Grantor, nor can the Grantor regain ownership of them. If the assets are in a revocable trust, Medicaid considers the assets to still be owned by the Medicaid applicant. This is because they still have control over the assets held in the trust. Therefore, the assets are counted towards Medicaid’s asset limit.

It is very important that you plan well in advance of the need for long-term care, and Medicaid is the best course of action when considering a Medicaid Asset Protection Trust. Medicaid Asset Protection Trust are not suitable for persons who need Medicaid immediately or within a short period. This is because Medicaid Asset Protection Trust are a violation of Medicaid’s Look-Back Period if not set up at least 5 years before one applies for long-term care Medicaid.

The “look back” is generally 60-months in all states. As stated earlier, California eliminated its asset limit in January of 2024. During the “look back”, Medicaid checks to ensure no assets were gifted or sold for under fair market value. For Medicaid purposes, the transfer of assets to a Medicaid Asset Protection Trust is considered a gift and violates the Look Back Rule. This results in a Penalty Period of Medicaid ineligibility. Therefore, a Medicaid Asset Protection Trust should be created with the idea that Medicaid will not be needed for a minimum of 5 years in most states.

Finally, Medicaid Asset Protection Trust rules are not only complicated and tend to change frequently, they also differ based on the state. For an example, Michigan considers a home in a trust, even if it is irrevocable, a countable asset, while California Medicaid, on the other hand, has very lax rules in regard to transferring a home to a trust. Here in California, a home, even in a revocable trust, is safe from Medicaid’s Estate Recovery Program. This is very unusual. In most circumstances, revocable trusts do not keep assets safe from Medicaid’s asset limit, nor Estate Recovery. Furthermore, California can only seek reimbursement of long-term care costs from those assets that go through probate, which is a legal process where a deceased person’s assets are distributed. If assets have been transferred to a revocable living trust, it is safe from Estate Recovery. This means it will avoid both probate and Estate Recovery and the need for Medicaid Asset Protection Trust are not as great in the state of California as in other states.

For all the reasons detailed here, it is imperative that a Medicaid Asset Protection Trust be set up correctly to ensure the assets transferred into the trust are exempt from Medicaid’s asset limit. Since the rules change frequently and vary by state, the trust must be created by someone who is familiar with the Medicaid Asset Protection Trust laws in one’s specific state. Incorrectly setting up a Medicaid Asset Protection Trust can inadvertently cause one to be ineligible for Medicaid, defeating the purpose of creating one.

The network of Lawyers, Paralegals, Legal Assistants and Industry professionals here at Syndicate Legal Services & Syndicate Subscription Legal Plans are knowledgeable and experienced in creating Medicaid Asset Protection Trusts throughout the United States. And while most law firms charge anywhere between two thousand dollars to more than ten thousand dollars to prepare a Medicaid Asset Protection Trust we are able to include Medicaid Asset Protection Trusts as part of all of our Individual & Family Subscription Legal Plans, saving you and your family thousands of dollars in legal fees and costs.

From above, the States that do not allow Qualified Income Trusts:

• California

• Connecticut

• District of Columbia

• Illinois

• Kansas

• Maine

• Maryland

• Massachusetts

• Michigan

• Minnesota

• Montana

• New Hampshire

• New York

• North Carolina

• North Dakota

• Pennsylvania

• Rhode Island

• Vermont

• Virginia

• Washington

• West Virginia

• Wisconsin