The fact is, as we age, the risk of needing long-term care or a nursing home stay is great. Many of our clients are concerned with how to pay for that care. They also worry about how to protect their hard-earned retirement and savings.
Medicaid is a benefits program that provides long-term care assistance to seniors who meet certain income and asset requirements. Unfortunately, many people are unaware of the options available to protect their assets from being spent down to qualify for Medicaid benefits.
An irrevocable trust is a very effective tool used in long-term care planning. It can allow seniors to protect their hard-earned savings now and utilize Medicaid in the future.
Medicaid Benefits and Eligibility Requirements
In order to qualify for Medicaid benefits, you must meet certain criteria based on age, disability status, and income level. You also need to have care needs that require ongoing skilled nursing care.
A person who is applying must be a U.S. citizen and over the age of 65 (or disabled). You can only own a very limited amount of assets to be eligible. Applicants may not transfer or give away assets to anyone except their spouse to become eligible. Some states may have different eligibility requirements so it’s important to check with your local rules and consult an experienced Medicaid attorney before applying.
The primary benefit of Medicaid is access to affordable healthcare services that would otherwise be too expensive. For seniors needing long-term care, a handful of programs are available. Most often, Medicaid pays for nursing home care when a person can no longer live at home independently.
An irrevocable trust can be a great tool for those who need long-term care and don’t want to spend their life savings before qualifying for Medicaid.
Using an Irrevocable Trust for Long-Term Care Medicaid Planning
An irrevocable or Medicaid Asset Protection trust is a legal document that allows you to transfer assets out of your name and into the name of a trustee on behalf of your trust. This type of trust can be used for long-term care planning.
It can protect your assets from creditors or be used for charitable giving purposes. It can also protect your assets from being counted by Medicaid when determining eligibility for benefits.
Overview of Irrevocable Trusts
This type of trust is an estate planning tool that enables you to transfer ownership of certain assets out of your name and into the trust. Unlike a “revocable” trust, the terms of an “irrevocable” trust are set in stone. This means they cannot be changed or undone once established.
For the purpose of long-term care planning, this is sometimes called a Medicaid Asset Protect Trust. This type of trust can also provide protection against creditors and lawsuits. Since the assets are no longer owned by you personally but rather held in the trustee’s name, they cannot be touched.
Advantages of Using an Irrevocable Trust
While it can be an effective tool, it is important to understand the process and potential pitfalls of setting up such a trust. Often, clients believe they need to spend down all their assets and savings to qualify for Medicaid. This often means paying out of pocket for nursing home care until they have met the strict asset limit requirement.
Instead of spending the funds on nursing home care, some clients are able to plan ahead of a look-back period and utilize this type of trust. This way, your assets can go to your beneficiaries, not paid to the nursing home month after month.
Disadvantages of Using an Irrevocable Trust
While it may benefit seniors with extra savings, there are some drawbacks. One disadvantage is that it can not be changed or revoked once the trust is funded.
You will no longer have access to any of the assets in the trust. They will be managed by a trustee on behalf of a beneficiary.
When using an irrevocable trust to qualify for Medicaid assistance, there are strict rules and regulations that must be followed. For example, many states, including Florida, have a look-back period. This means that transfers made within a certain number of years before applying for Medicaid can disqualify you. Currently, the look-back period in Florida is 60 months or five years.
Using this time of trust takes careful advanced planning. So, while an irrevocable trust can provide much-needed asset protection, it may not be a good fit for everyone.
Tax Implications of Using an Irrevocable Trust
Several potential tax issues should be considered when setting up an irrevocable trust. These include federal income taxes, gift taxes, estate and state-level inheritance taxes (not applicable in Florida), or transfer taxes. Additionally, capital gains tax may also need to be considered depending on how the trust is funded.
Federal income tax laws generally treat trusts as separate taxpayers. This means any income generated by the trust may be subject to taxation at both federal and state levels unless otherwise excluded by law.
Additionally, certain transfers made into or out of the trust may trigger either estate or gift taxes. It is important to consult with an experienced Elder Law Attorney or Certified Public Accountant in your state before funding an irrevocable trust to avoid any potentially costly penalties.
Establishing an Irrevocable Trust for Long-Term Care Planning
Long-term care planning, or Medicaid planning, is a complex process. It requires careful consideration and understanding of both legal policy and tax issues. It is critically important to consult with a qualified elder law attorney to guide you. Skilled attorneys like ours will work with you to prepare a trust perfect for your needs.
We will help you with details like the appropriate amount to transfer to the trust and decide who will manage the trust. We’ll help you decide who will administer the assets held, what investments are allowed, and when distributions may be made.
In addition to the trust, you’ll need various documents to help you manage your long-term care needs. These documents may include a power of attorney, tax returns or financial statements related to trust income or assets, deeds transferring property into or out of your trust, and a will naming beneficiaries or trustees.
Establishing an irrevocable trust for long-term care Medicaid planning can be complicated. However, with the right knowledge and guidance from a skilled Medicaid planning attorney, you can be confident that your trust will be properly set up and managed to maximize its benefits.
Is using an Irrevocable Trust to Plan for Medicaid Right for Me?
Understanding the advantages and disadvantages of a trust to plan for future Medicaid eligibility is important. It can be a great tool to protect assets for your beneficiaries. However, it also restricts access to those funds and may have unfavorable tax implications.
The experienced team at Friedman Elder Law Department can help guide you through this process. You will have peace of mind knowing your Medicaid eligibility will be maintained and your life savings protected.
It is important for seniors and their families to be properly informed about the costs of nursing home care. That includes the options available to pay for nursing home care. Medicaid is one option and can be invaluable when covering long-term care costs.
Working with an experienced South Florida Elder Law Attorney can help you understand your options. Contact us today to learn how more about how we can help you plan for your future needs.