Can trusts help Hoosiers qualify for Medicaid?

Elder law attorneys often use trusts to help protect assets from nursing home costs. Some trusts can protect assets, while others won’t.

Some trusts are acceptable to Medicaid, while others aren’t. Elder law attorneys with Medicaid eligibility expertise know how to use the appropriate trusts for each asset protection situation.

What is a trust?

A trust is an agreement between a person (called the “Settlor” or” Trustor“) making and transferring assets to the trust and another person (the “Trustee”) accepting responsibility to hold and manage the trust’s assets for the benefit of one or more beneficiaries. In some cases, the Settlor also serves as the Trustee.

Irrevocable MAPTs

Assets in an irrevocable Medicaid asset protection trust (sometimes called a “MAPT”) don’t count against you for Medicaid eligibility purposes. However, Medicaid will penalize you with partial ineligibility if you apply for benefits within five years after transferring assets to the MAPT. A MAPT Settlor irrevocably transfers assets to the MAPT without keeping any rights to reclaim or withdraw the assets, but the Settlor can receive all the trust’s net income. If a MAPT trustee has any discretion to distribute the trust’s assets to the settlor, all the trust’s assets are countable resources even if the trustee refuses to exercise the discretion. This kind of MAPT plan helps beneficiaries avoid capital gains taxes and protects the Settlor from the beneficiaries’ legal and financial problems.

Revocable trusts

A revocable trust (sometimes called a “living trust”) is almost the opposite of a MAPT. A Settlor can rewrite or terminate a revocable trust at any time for any reason. Because a Settlor in a nursing home can change or completely rewrite a revocable trust, Medicaid counts the trust’s assets against the settlor’s $2,000 Medicaid resource limit, making Medicaid eligibility nearly impossible without spending all the trust’s assets.

Spousal testamentary trusts

A person creates testamentary trust through language in the person’s last will and testament.

The federal law that makes a revocable trust’s assets countable does not count assets that a deceased spouse leaves in a testamentary trust for a surviving spouse. So, married people often use testamentary trusts to protect investment accounts, IRAs and other monetary assets for their spouses.

Miller trusts

Miller Trusts (also known as Qualified Income Trusts or QITs) solve some nursing home residents’ excess income problems. They transfer excess income to QITs and pay nursing home bills with the income. A QIT only works when you need Medicaid and Medicaid must be the QIT’s beneficiary after you die.

About the Authors

Jeff R. Hawkins and Jennifer J. Hawkins have practiced in the areas of trusts, estates, and elder law for over 26 years. Find more information about these and other topics at www.HawkinsLaw.com. © Copyright 2018 Hawkins Law PC. All rights reserved.