Medicaid Planning for the Home: Irrevocable Medicaid Trust

By: Roman Aminov, Esq.

When it comes to long term care for seniors, our office recommends long term care insurance as the first choice. If that is not an option, planning for Medicaid becomes an important component of many families’ plans. While Medicaid allows seniors to own a home and still qualify for benefits, it is important to understand that Medicaid can impose a lien on the home if the senior is admitted to a nursing home. Additionally, Medicaid may collect against the estate after the senior passes away, regardless if they were receiving community or institutional Medicaid. It is therefore necessary to understand various planning strategies which allow seniors to obtain necessary benefits while protecting their assets for their heirs. One of the best techniques which attorneys use involves the transfer of the home into an irrevocable Medicaid trust, which will be discussed in this article.

Benefits During Life
The Medicaid trust involves transferring the home and other assets into an irrevocable trust which will then be managed by a trustee (or trustees) of your choice. The trustee can be a child, friend, sibling, or anyone you trust, excluding your spouse. A properly drafted trust entitles you to all of the benefits of ownership including:

1. The right to remain in the home as long as you and your spouse are alive.
2. The right to make the trust “income only” and collect any rent the property generates.
3. The ability to keep your existing STAR and Enhanced STAR property tax relief as long as you reside in the home.
4. The right to use the $250,000 (if single) or $500,000 (if married) capital gains tax exclusion if the home is sold during your life.

If the home is sold during your life, a new home can be purchased for your benefit. You can also allow the assets in the trust be used for the benefit of your children, grandchildren, or other beneficiaries. It is important to make sure that the trust does not allow the trustee to give the principal directly to you or your spouse. The trust can also allow you a limited right to change your trustee if you are not happy with how they are performing.

The trust also protects your beneficiaries from creditors. Instead of gifting your home outright, by placing it in trust, you are able to shelter it from the reach of your beneficiaries’ creditors. If one of your ultimate beneficiaries has a creditor which you wish to avoid, you can simply change your beneficiaries by using your limited power of appointment so that your assets don’t fall into unwanted hands.

From a planning standpoint, transfers into a trust should be done sooner rather than later since Medicaid imposes a 5 year look-back for nursing home care. By transferring your assets into a trust, you start the five year look-back clock running if you were to ever need nursing home care.

Benefits After Death
After you and your spouse both pass away, the trust will distribute the assets as per your wishes. During your life, you can retain the right to change your beneficiaries by retaining a limited power of appointment. This power allows you to change the beneficiaries either by writing a will or by executing any other writing during your life which makes reference to the trust. This means that the creation and funding of the trust doesn’t spell the end of your control of the ultimate disposition of your assets. It also means that the home will be included in your estate when you pass, and will receive a step-up in tax basis. The step-up in basis saves your heirs from paying capital gains tax upon the immediate sale of the home.

Additionally, the trust allows the home and other assets to avoid probate which saves unnecessary time and expense. By avoiding probate, you also avoid Medicaid estate recovery which is the government’s way of taking back the amount they paid for your care after you die. More about Medicaid estate recovery can be found here

We hope this article has shed some light on the Medicaid planning trust and highlighted the benefits of thinking about one with your elder care lawyer. Any specific questions or situations should be discussed with a competent attorney. We welcome you to contact our office for a free consultation at 347-766-2685.

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