Think Twice About a Medicaid Trust

Medical care can be ridiculously expensive if you have the bad luck of becoming incapacitated. Traditional health insurance normally will not pay the costs of disability care or a nursing home.

Unfortunately, Medicare will not cover the costs of extended nursing home care either. Some people work hard all their lives, became sick, and have to sell virtually everything they own to pay for their nursing home care. Medicaid kicks in only when you are almost penniless.

However, that's the trick. The key is how Medicaid defines "penniless." The truth is you do not have to be indigent to qualify for Medicaid care. Through advance planning, it is possible to qualify for Medicaid and not lose all your assets. It is important to think about the issues and have some kind of plan before any crisis occurs.

Disability insurance is one plan. However, it tends to be costly and some people won't qualify for it due to pre-existing medical conditions. Many people are left wondering how to get Medicaid to cover disability care costs without being indigent to qualify for it.

A Medicaid Trust is an often discussed option. A Medicaid Trust is a trust that purportedly shields your assets from Medicaid should you become sick and require treatment.

The problem is that for a "Medicaid Trust" to work, it needs to be an irrevocable trust. When you place assets in an irrevocable trust, you no longer own or control them. If you take this step, you, indeed, become poor enough to qualify for Medicaid.

So, a Medicaid trust is a drastic step that most people will not consider. What makes it even more worrying is that Medicaid has a ‘five year look-back rule’ which lets the government recapture any assets you either placed in trust or gave away within 5 years of going on Medicaid. And, if the government can show you ever gave away assets with the intent of shifting future medical bills to Medicaid, it could deem that transfer as a fraudulent conveyance and recapture the assets.

To use a Medicaid trust, it is imperative that you transfer your assets to an irrevocable trust, which is managed by an unrelated trustee, when you are not in need of medical treatment, and hope that you will not need it within the next five years. There are a lot of risk factors in this plan!

There are some Medicaid estate planning professionals who state that they can create various types of attractive-sounding Medicaid trusts. Some claim that they can draft you a trust that will shield your assets from consideration for Medicaid qualification and still let you access the income from the trust; replace the trustee if you wish; and, allow you to benefit from the trust’s assets. Assets in a trust such as this one might disqualify you from Medicaid -- so be wary.

It is not impossible to create a working Medicaid trust but the laws and regulations concerning Medicaid qualification keep evolving and litigation will continue over the next few years. The recent changes that Congress made as a part of the Deficit Reduction Act of 2005 have complicated the whole thing, especially the five year look-back rule.

If somebody claims that they can offer you a Medicaid trust whereby you can still control and benefit from your assets, be wary and ask to see recent legal precedent supporting their opinion. If in doubt, talk to another attorney experienced in protecting assets from Medicaid.