Shielding Assets for Medicaid Eligibility

Medicaid planningCan a revocable land trust protect a house from Medicaid? Hmmm. What do you think?

A land trust is a private agreement with the trustee, agreeing to hold title to property for the benefit of the beneficiary or beneficiaries. The creator of the trust is called a ‘Trustmaker’, ‘Settlor’ or ‘Grantor’. This person is usually the owner of the property before it’s transferred into the trust.

It is important to note, however, that a revocable trust, even if it only owns your residence (a land trust), won't help to protect your home from Medicaid's spend down requirements.  One of the reasons that this is true is because a trust that’s revocable, can be terminated at any time by the Trustmaker.  This means that the home would once again become the property of the Trustmaker.

The settlor frequently remains the beneficiary of the trust for his lifetime. In effect, the trustee holds the title to the property and must follow the instructions of the beneficiary. The beneficiary typically has the absolute right to direct and control the trustee and receive all income from the trust. The trust agreement, at the creation of the trust, dictates the relationship between the trustee and beneficiary. As a result, the trustee often has no more power than the settlor gives him. In addition, he doesn’t have any other function, other than to do as the trust deed instructs.

Medicaid sees the assets in a revocable trust as countable, because the Medicaid applicant, who places the home in the trust she created, has total control.  It means that she can take back the asset at any point in time.

In such a case, Medicaid will deny the application. They’re effectively telling the applicant to sell the home, spend down the assets, and then reapply when they have no more than $2,000 in assets in her name and in the revocable trust combined.

Assets in an irrevocable trust may be excluded from Medicaid spend down rules, based on the terms of the trust.  However, even if the home was placed in an irrevocable trust that would exclude it from Medicaid, the transfer to the trust must be completed more than five years, before applying for Medicaid to avoid the five-year lookback and Medicaid penalty provisions.

If there is the future possibility of needing Medicaid, you should talk with an experienced elder law attorney who has knowledge of the Medicaid regulations, before trying to create a trust.

Reference: nj.com (April 9, 2018) “What revocable land trusts mean to Medicaid eligibility”


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