Understanding the basic concept of crisis long-term care planning may help to understand the use of a Medicaid asset protection trust for advance planning.
Estate, Trust & Elder Law Firm is uniquely qualified to provide crisis Medicaid planning which is generally attainable even if your loved one is already in a nursing home. In addition, our public seminars educate the public on how crisis planning is accomplished.
Florida is one of the most advantageous states in which to pursue crisis Medicaid planning, and if you have a loved one in a nursing home or whose admission to one is contemplated in the near future, you should see a qualified elder law attorney as soon as possible to pursue crisis planning strategies.
Our Goals When Creating a Medicaid Asset Protection Trust
In both advance and crisis planning, our goals include:
- Putting the patient in a position where the family can help maintain the highest possible quality of life for the most extended period of time. Through various crisis planning strategies, we can disqualify assets that are then converted to exempt assets or income streams in a way that the family can still access them. Giving family access to this money helps to pay for benefits for the patient that public benefit sources (generally Medicaid and VA nonservice-connected pension) will not pay for, but that such assets are no longer disqualifying.
- The second goal of planning is to maintain the caregiver spouse’s financial security. If we spend all the couples’ money on the care of one spouse, what is the surviving spouse to do for sustenance for the rest of their life? How can our client have a high quality of life if they know they’re leaving their spouse destitute?
- The third goal of planning is the preservation of the inheritance. Our senior clients have worked their entire lives to accumulate their assets, and during that accumulation, they have also paid into the system for their whole lives. Therefore, we believe they are entitled to anything the system will provide through ethical and legal techniques to qualify for benefits. The maximum amount of their accumulations can pass to their children instead of a nursing home.
Keeping in mind that the firm is skilled in achieving those goals for crisis Medicaid planning, specific assets, and income levels, and the possible unsuitability of some of the techniques we might want to use for crisis planning indicates that if we have a client with a significant net worth and income which is not likely to require skilled nursing care within the next five years, then we should consider advance planning.
Suppose the condition of your loved one indicates a high probability of the need for skilled nursing care within the next year or two. Then, depending on the asset and income of the applicant(s), advance planning may not be appropriate.
However, in a situation of considerable assets, let’s say more than $200,000 (liquid assets or even just a homestead), and a likelihood of not needing skilled nursing care in the next five years, then advance planning through the use of a Medicaid/VA asset protection trust should seriously be considered.
Advance Planning
In a nutshell, the way advance planning works is that the irrevocable trust instrument is created after the client(s) executes the trust. We would then assist in substantially transferring all assets to the trust. Typically, the senior would retain an active account with minimal assets to make the senior comfortable under the circumstances, including consideration of the senior(s)’ income, which would not and could not be transferred to the trust.
For instance, let’s say $25,000 or $50,000 is retained in the active account outside of the trust.
The trustee is typically one or more of the senior(s)’ children. The trust would have lifetime beneficiaries, again usually one or more of the children, and ultimate beneficiaries, those to whom the assets remaining in the trust at the death of the survivor of the grantors would be distributed.
After establishing the trust, if the active account was depleted to the point that the grantors were uncomfortable, the trustee could, but would not be required to, distribute some of the trust assets to one or more of the lifetime beneficiaries, who would then deposit such distributions into their personal bank account.
The child (lifetime beneficiary) could then gift necessary amounts back to the parents to restore the active account, purchase a new car, or pay for any other necessity for the parents, including the cost of any care needed before the expiration of the five years.
Suppose these kinds of transfers are made too frequently. In that case, Medicaid may establish that the whole transaction was intended to keep these assets as available resources and, therefore, the desired strategy would not be achieved. It is crucial to analyze the totality of the senior generation’s assets and income and plan accordingly to minimize the need for future access to the trust.
These trusts often work better where the senior is not spending all their income, and future needs above recurring income are more unlikely.
The long-term care planning strategy is that after the expiration of five years from funding, the assets in the trust would not be available resources to qualify for Medicaid.
If skilled care were necessary, after the expiration of five years, we would only have to deal with the assets outside the trust for crisis Medicaid planning (the $25,000 or 50,000 retained active account, for example, crisis Medicaid planning, which is very achievable). All of the assets in the trust would have escaped being consumed by long-term care expenses.
Advantages of Pursuing Advance Planning
Some of the other advantages of pursuing advance planning as soon as practical include the fact that the assets transferred to the trust would not be available resources for purposes of the VA nonservice-connected pension benefit three years after funding (see our website, or the VA website, for further discussion of this benefit).
Also, the trust would be grandfathered in for purposes of the five-year look back. In other words, we think it is inevitable that the Medicaid law will change in various ways because of the increasing proportion of the federal budget consumed by Medicare and Medicaid expenses.
It would certainly be easy for one of these changes to be the extension of the five-year look back to ten years. Five years is doable; ten years not so much.
Including a Limited Testamentary Power of Appointment
Another advantage is that we generally include a limited testamentary power of appointment in the trust document. A limited testamentary power of appointment means that the senior(s) can execute a new will at any time after the creation of the trust and exercise the power of appointment by changing the ultimate beneficiaries. Therefore, the designation of who is going to ultimately acquire these assets is retained by the seniors.
The power of appointment also enables income tax basis step up at the time of the death of the power holder. And, of course, the assets in the trust avoid probate and may also be exempt from the claims of other kinds of creditors other than just long-term care creditors.
Transferring the Homestead
The trust can also be particularly effective concerning the Homestead Exemption, and we generally transfer the homestead to the trust for our clients. The homestead is transferred to a residential sub-trust concerning which senior(s) retains the right to reside in the homestead sufficient to continue to qualify the homestead for real estate tax exemption as well as the IRS section 121 exclusion of gain on sale of a personal residence and, as aforesaid, if the homestead is not sold during the lifetime of the client, it will receive an income tax basis step up at death.
The real benefit of transferring the homestead is realized in that situation where it is later determined to sell the Homestead. Had we not transferred it to the trust, all the sale proceeds would now be potentially available resources that would have to be dealt with before obtaining Medicaid or VA eligibility.
Since we transferred it to the trust, the residential sub-trust provides that the proceeds are automatically rolled over into the nonresidential portion of the trust and do not start a new look back upon sale. This can be highly effective and advantageous to the clients.
If you have any other questions about the strategy, don’t hesitate to contact the firm at 772-828-2588 or by email at info@etelf.com to request our confidential client intake form.
