Why Are Revocable Trusts Useless In Medicaid Planning?
A revocable living trust is useless in Medicaid planning primarily because the person who created the trust can revoke it and still has access to the trust assets and trust distributions. They can terminate and receive the assets in the trust. Therefore, the Medicaid rules say that the assets held in a revocable trust will count as an asset under the Medicaid eligibility rules. If an asset counts, it should be spent down on care before Medicaid eligibility begins. Your main objective, if you have a trust that you are entitled to assets on, is to get an immediate review and evaluation from an elder law attorney to help you determine whether or not the asset will affect Medicaid eligibility, and take the recommended steps to solve the problem.
Ultimately, if your revocable living trust or trust plan was not created by an elder law attorney who actually files and pursues Medicaid applications, you need to have your existing estate planning documents reviewed by such an attorney, to determine how it will affect your Medicaid eligibility in the future.
What Are The Advantages Of An Irrevocable Trust In Medicaid Planning?
There are two main advantages to an irrevocable trust when it comes to Medicaid planning. First, if you have established, funded, and correctly managed an irrevocable trust five years before needing skilled nursing care, all the assets in the trust do not count against your Medicaid eligibility requirements or asset limit. If you had a million dollars in an irrevocable Medicaid asset protection trust, that money does not count against your Medicaid eligibility and that money does not have to be spent down on skilled nursing care. As long as you have trusted family members involved in your life and your care, that money can be used for your higher quality of life and quality of care. Furthermore, that money can be used to preserve an inheritance plan.
If you have established life insurance policies that have cash value, that cash value counts against your Medicaid eligibility requirements and may have to be surrendered. Having those whole life policies held in an irrevocable asset protection trust that is properly structured will prevent the potential surrender or change of your life insurance policy inconsistent with your intent concerning that policy. The irrevocable trust also gives you flexibility as it relates to the use of your assets at the time when skilled nursing care is needed. As long as you have family members you trust, they can use the money to reimburse themselves if they are contributing to your care needs and quality of life. With responsive or crisis-related Medicaid planning, the options for your family are very limited with respect to what they can do with your money. They cannot protect as much money as they could have had you planned earlier with irrevocable trust planning.
It is important to distinguish between using an irrevocable trust versus simply giving away all your money to your kids. The properly structured, irrevocable Medicaid asset protection trust can have positive tax consequences as opposed to gifting. If you gift assets, you will lose many tax benefits. Compared to giving away your money to protect your assets from the nursing home, the irrevocable trust is the most tax-efficient way. The tax savings typically justify the legal fees associated with establishing an irrevocable Medicaid asset protection trust.
How Far In Advance Must An Irrevocable Trust Be Created & Funded In Order To Be Useful in Long Term Care Planning?
For an irrevocable asset protection trust to be useful towards long term care planning, it depends on your current health and your total level of assets. For people with assets such as a primary residence and $500,000 in a money market account, seeking more advanced planning to create a really optimal financial result, if you need skilled nursing home care, is advisable. The best plan is to meet with an attorney to let you know if you’re too late or if reactive or crisis Medicaid planning is more beneficial to you. Some people with lower assets do not need to set up an irrevocable trust, as reactive Medicaid planning will better serve them. Other people who have too many assets have no choice but to do a five-year irrevocable asset protection trust on the day they need nursing home care because responsive or crisis-based Medicaid planning will not serve their needs.
For more information on Futility Of Revocable Trusts In Medicaid Planning, an initial consultation is your next best step. Get the information and legal answers you’re seeking by calling (904) 398-6100 today.
Call Us Today
(904) 398-6100
