The rules for different types of trusts and Medicaid vary. Before undertaking a Medicaid application, you will want to understand what kind of trust you or the applicant has, who owns it and how it is funded.
Strict income and asset limitations are part of the guidelines when applying to Medicaid, according to a recent article in nj.com, “How trusts fit in with Medicaid planning.” Because this is a needs-based government program, administered by each state, qualifying for assistance requires proving a financial need.
To prevent people from just making quick transfers of their property, either outright or in a trust, to qualify for the Medicaid program, there’s a penalty period imposed on transfers made within five years of applying for Medicaid.
The penalty is a period of time, during which the applicant doesn’t get Medicaid benefits after otherwise qualifying because of the amount transferred within the prior five-year period. The penalty period is determined by dividing the amount transferred by the monthly penalty divisor.
In the same vein, if a person creates a trust using some of his or her own funds, where the individual is the sole beneficiary or one beneficiary in a group of beneficiaries, the trust may be considered an available resource for purposes of determining eligibility for Medicaid. It will be counted as an asset when determining eligibility for the program.
This is especially true, if the trust can be revoked. A revocable trust and its assets can be “pulled back” into the name of the Medicaid applicant, and be counted as his or her asset for eligibility purposes.
If the trust is created by a third party and with third party funds for the benefit of the Medicaid applicant, the answer would depend on the specific terms of the trust and whether the settlor (the person who created the trust) is the spouse of the Medicaid applicant.
This is because income and asset limitations are imposed on the “community spouse” (the spouse still living at home), in order for the applicant spouse to qualify for Medicaid.
Another thing to bear in mind: in some situations, the state government has the right to recover funds from the estate of a Medicaid recipient who has died. That may include assets that are held in a trust, depending upon who owns the trust and how it was funded.
An experienced estate planning attorney will be able to guide your family through the Medicaid application. Planning in advance, before there is an emergency, is always the best strategy.
Reference: nj.com (December 26, 2017) “How trusts fit in with Medicaid planning”