Using Trusts to Establish Medicaid Eligibility

Medicaid is a federally funded program that provides health coverage to millions of elderly Americans. This coverage can be invaluable for financing nursing home care or assisted living. Not everyone is eligible for Medicaid, as there are strict income and personal asset value limits. However, by creating a certain type of trust, elderly people with substantial assets may be able to qualify for Medicaid long-term care benefits.

Some people try to qualify for Medicaid by spending down their assets. In Arizona, individuals applying for Medicaid long-term care benefits can keep $2,000 in asset value. Someone with little money can spend funds on medical care, medical devices and other expenses in order to reach that level. However, if the person has significant wealth, a better choice is to use an asset protection trust.

An asset protection trust, also called a Medicaid eligibility trust, allows the individual to transfer assets from their own name to a separate entity. Upon transfer, the assets no longer belong to the individual and are managed by a trustee. These assets are not counted towards the Medicaid value limit. Once the individual dies, the assets within the trust are distributed to his or her heirs and other specified beneficiaries.

An asset protection trust requires careful advance planning. The terms of the trust must meet certain requirements. The timing of establishing the trust is also important. Medicaid rules provide that property transfers made by Medicaid applicants within the preceding five years are not exempt from the asset limitation. Such transfers can result in applicants being penalized or having their eligibility for Medicaid delayed or denied.

There are other trust requirements and exceptions to the applicable rules, so it is important to consult a qualified estate planning attorney. One aspect to consider is that the individual who created the trust may still be able to use a transferred asset (such as a home) even though they no longer hold title. Conversely, the beneficiaries of the trust may not get all of the property intended for them. The Medicaid program may have claims or liens against the trust property. Also, the trust may be subject to certain taxes or other governmental fees.

The Law Firm of Joseph M. Udall, PLC in Mesa provides comprehensive estate planning services for Arizona residents. If you are interested in setting up an asset protection trust or taking other steps to preserve and distribute your property, please feel free to contact us online or call (480) 500-1866 for an initial consultation.