A Medicaid trust is a legal device that can be useful for people who are aiming toward Medicaid eligibility. Before we look at the drawbacks of these trusts, we should explain why Medicaid can be relevant to people who will qualify for Medicare.
Nursing Home Care
The majority of senior citizens will need some type of long-term care eventually, and many will ultimately reside in nursing homes. Nursing home care can be described as exorbitantly expensive. It can easily cost over $100,000 per year to reside in a quality nursing home in the state of Pennsylvania, and people often require multiple years of care.
Medicare does not cover nursing home expenses, but Medicaid does pick up the tab for nursing home care. This is why Medicaid could be relevant to you, even if you will qualify for Medicare.
Spending Down
Most people are aware of the fact that Medicaid is intended for people with virtually no financial resources. For a senior applying for coverage to pay for long-term care, the limit on countable assets is $2000.
To qualify for coverage, people “spend down” their assets. Many will give their loved ones their inheritances in advance, so that they can qualify for Medicaid to pay for nursing home care.
You could give people gifts in a direct manner, but another option would be the creation of a Medicaid trust. When you convey assets into a Medicaid trust, they would no longer be in your personal possession, and they would not be counted by Medicaid evaluators if you apply for coverage.
After you pass away, the beneficiary that you name in the trust declaration would assume ownership of the assets of in the Medicaid trust.
The major disadvantage is the simple fact that you are giving up control of the assets that you convey into the Medicaid trust.
Because there is a five-year look-back, you must give away your assets at least five years before you apply for coverage. Since you have to act in advance, you may create a Medicaid trust and never need long-term care. Under these circumstances, you would have given up control of the assets for nothing.
It is possible to create an income-only Medicaid trust. You could continue to receive income from the earnings of the trust, but the principal would not be counted against you by the Medicaid program.
The drawback here is that the income would go toward the cost of your long-term care if you do wind up using Medicaid to pay for nursing home care. A caveat to this statement would be that your spouse could continue to draw from this income under certain circumstances.
Free Medicaid Planning Consultation
If you have questions about Medicaid planning, feel free to contact us through this page to request a free consultation: Bucks County PA Elder Law Attorneys.
Marianne Flood, Estate Planning Attorney
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