Medicaid Trust

What is a "Medicaid Trust"?

Everyone knows how horrendously expensive medical care can be if you become disabled. Unfortunately, traditional health insurance will usually not pay the costs of nursing home or disability care.

Medicare also will not cover the costs of extended nursing home care.

You've heard the stories about people who lost virtually everything they’d worked for, their whole life, paying for nursing home care. Only after they'd spent virtually all of their assets, did Medicaid kick in.

There are other options. But advance planning is usually necessary. You need to think through the issues and have a plan in place before the crisis erupts.

Some people's plan is to buy disability insurance to cover their costs. This is a great option if you can afford it. But, disability insurance is expensive, especially if you are older. And, some people can’t get it at all.

So, most of us are left to try to figure out how we can get Medicaid to cover the costs of disability care without having to become indigent to qualify.

A Medicaid Trust, is one commonly discussed option. When people talk about a Medicaid trust, they are talking about a trust that will shield their assets from Medicaid.

A Medicaid trust is simply an irrevocable trust where you essentially give your assets away by placing them in the irrevocable trust. You lose control of them and no longer have a legal interest in them. You no longer own them. Obviously, if you do this, you become poor enough to qualify for Medicaid. [A normal revocable living trust will not work since you still control the trust.]

As you can see, this type of trust is a drastic measure that most people will not want to take.

To make matters worse, the new Medicaid "five year look-back rule" allows the government to potentially recapture any assets you gave away (or placed in the trust) within five years of going on Medicaid.

Besides that, if you give away assets, or put them into a Medicaid trust, with the intent of shifting your future medical bills to Medicaid – that could be viewed as a "fraudulent conveyance" that the government could recapture.

So, it seems to me, the only way you can be sure your Medicaid Trust will "work" is if you transfer your assets to an irrevocable trust (managed by an unrelated trustee) at least five years before applying for Medicaid -- and at a time when you had no anticipation of needing Medicaid coverage.

That's pretty tough medicine in most cases.

There are some Medicaid estate planning professionals who will tell you they can create various types of attractive-sounding Medicaid trusts.

Some of them say they can draft you a trust that will shield your assets from consideration for Medicaid qualification and still magically:

• allow you to continue to access the trust's income,


• give you the ability to replace the trustee, and/or


• in some other way allow you to continue to benefit from the assets in the trust.

I will just warn you that Medicaid trusts like that may not later withstand scrutiny. There is a real risk that assets in such a trust will, in fact, be counted for Medicaid qualification purposes -- and might disqualify you from Medicaid.

I will not say it is impossible to create a Medicaid trust that works.

However, the law and rules regarding qualification for Medicaid are continuing to evolve, and frankly, no one yet knows exactly where the lines now are. They will be determined through litigation over the next few years.

I can say with confidence that the recent changes Congress made as part of the Deficit Reduction Act of 2005 (especially regarding the five year look-back rule) have severely complicated the whole concept of a Medicaid Trust.

If someone tries to sell you on some magic trust that you can control, but yet won't count for Medicaid purposes – be very careful. Ask them to show you recent legal precedent that supports their opinion.

However, despite the problems with Medicaid trusts, there ARE ways to preserve your assets and still qualify for Medicaid.

In fact, Medicaid rules specifically authorize certain methods of preserving assets while still qualifying for Medicaid. To find out more read Medicaid Annuity.

The Medicaid (and SSI) rules are much more favorable if you are thinking about using your assets to support someone else -- like a disabled child or someone with special needs. For more about that, read Special Needs or Disability Trust.

Here's a great place to find lots more medicaid planning information and even ask your medicaid questions. You also can post your questions or comments below.

Visit Living Trust and Medicaid

Other Medicaid Articles:

• Medicaid Annuity
  Wonder what a Medicaid Annuity is? Should you get one? Find out here.

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