Medicaid Trusts and Applications
The Medicaid Asset Protection Trust
Wouldn’t you like to preserve your assets for future generations while still qualifying for Medicaid? One effective planning technique is to transfer assets into a Medicaid Asset Protection Trust. In a Medicaid Asset Protection Trust, the trust maker can retain the right to the trust income while irrevocably giving up the right to receive or benefit from any of the trust principal. The assets in the trust are thus not available to pay for the cost of the trust maker’s long-term care medical expenses. The specific income strategy will vary depending on the client’s personal and family needs.
By using a Medicaid Asset Protection Trust, you can preserve capital and still qualify for Medicaid. If you are applying for home care, currently, New York State does not apply a “penalty period” and you can qualify immediately
If you are applying for institutional care (nursing home care), a “penalty period” will apply based on the amount of assets transferred within the “look-back period” (the five-year period before the Medicaid application). The “penalty period” starts from the date the applicant applies for Medicaid, is receiving institutional care, and would be eligible but for the disqualifying transfer. Its length is determined by dividing the county’s average daily private pay nursing home cost into the total of the transfers made during the look-back period.
For this reason, planning as far in advance as possible—while you are healthy—is very important. While sophisticated strategies can be employed to preserve much of your assets if you need imminent or immediate nursing facility care, on average, even with the best of planning, at this late stage, only about half of your assets can be preserved.
General Information:
Can’t I Just Gift My Property?
It is, of course, possible to make “outright” gifts of property, wait until the “look-back period” expires, and then apply for Medicaid or use other planning techniques to qualify for Medicaid at the earliest possible date. However, this strategy is often not optimal, and can result in significant loss of control, capital gains taxes, and loss of income. A properly structured Medicaid Asset Protection Trust can provide for the trust maker’s gifting desires, while still protecting the assets in many other ways.
What if My Home is the Only Asset to Protect?
If the home is the only asset to protect, a Medicaid Asset Protection Trust is still one of the best planning strategies. The trust maker can retain the right to live in the house for life and even direct that the house be sold and another one purchased if they want to move. This strategy is superior to simply making a deed to children or others with a retained life estate for the client. With a deed and life estate, the tax basis of the home will transfer to the recipient, and upon sale, there may be a significant capital gains tax that must be paid. With a properly structured Medicaid Asset Protection Trust, however, your heir can get what’s known as a “step-up in basis,” which means that upon your death, the new tax basis will be the then-current fair market value of the house. For a house that has realized a significant value increase, this one strategy can save tens of thousands or even hundreds of thousands of dollars in capital gains tax
Conclusion
Proper advance Medicaid planning can preserve nearly all of your assets for your heirs, and can even save significant amounts on taxes. And even if the need for long-term care is imminent or immediate, sophisticated Medicaid planning opportunities can be employed to protect a substantial portion of your assets. Carefully working within the Medicaid transfer rules can allow you to provide security for yourself and a legacy to your family, while ensuring that you will remain eligible to receive Medicaid benefits when necessary.
