What should I know about a Medicaid trust?

On Behalf of | Aug 13, 2020 | Trusts |

In order to qualify for Medicaid, your income and resources must be below a particular limit. Otherwise, you would have to spend your assets down so you can receive Medicaid benefits. However, you might be able to retain some of your financial assets by placing them in a Medicaid trust. 

A Medicaid trust is a way for you to protect some of your existing assets so that you do not have to spend or discard them to reach the eligibility level to qualify for Medicaid. If you are not familiar with a Medicaid trust, Policy Genius provides some background on how these kinds of trusts work. 

Assets to transfer into the trust

Like other kinds of trusts, you can transfer assets you currently own into a Medicaid trust. Since not every asset you own counts toward the resource limit for Medicaid, you can still hang on to some assets without risking Medicaid eligibility. These assets may include your automobile, personal belongings, some retirement accounts, some forms of life insurance, your primary home, and your funeral and burial costs up to a specific limit. 

Assets that do count towards your resource limit can include a checking account, a savings account, bonds, stocks, CDs, money market accounts, and property other than your primary residence. Transferring these assets to your trust may be necessary to meet Medicaid eligibility requirements. 

Characteristics of the trust

You need to set up a Medicaid trust in the right way or the IRS will not count it as a Medicaid trust. First, it must be an irrevocable trust. You cannot retain power to modify the trust once you set it up. Secondly, you should not act as trustee. Be aware that the IRS may also disqualify your trust if you install your spouse as the trustee. 

The Medicaid look-back period

The Medicaid look-back period applies to transferring assets into a trust, so if you place your assets in a Medicaid trust too soon before applying for Medicaid, the government will likely disqualify you for benefits. You will probably need to wait five years after transferring assets before trying to secure Medicaid benefits, although this rule is not uniform in every state in the country. 

Protection from estate recovery

A Medicaid trust also allows you to protect your assets from estate recovery. If you receive Medicaid benefits, the state might attempt to recoup Medicaid costs from your estate following your death. But since a Medicaid trust is an irrevocable trust, the government does not count its assets as part of your estate. You may organize your trust so your children or grandchildren receive the assets instead after you die.