Some people are aware of the concept of Medicaid planning but are very reluctant because they are not ready to transfer their assets into a trust or as some put it, “give all their assets over to their children.”
Medicaid planning is not all or nothing.
A Medicaid Asset Protection Trust is an irrevocable trust that is utilized to preserve the assets funded in the trust so that those assets are not countable resources for Medicaid long term care eligibility purposes.
You do not have to transfer all of your assets into this trust. The main rule is that assets transferred into the trust will not be counted as your resources for Medicaid purposes and will be sheltered (after the applicable lookback period). The assets that remain out of trust will not be protected and may be countable resources when you need long term care.
If you are not in need of long term care services now, but wish to plan for a potential future need to access Medicaid long term care benefits, it is advisable to transfer some of your assets into the trust, while leaving out of the trust whatever you expect to need for your living expenses, and an additional cushion for an unexpected event, calculated at least for the next five years.
Contrary to erroneous belief, you do not have to be at the very low Medicaid eligibility limits during the full lookback period. Your assets only need to be below the Medicaid eligibility resource limits when you apply for Medicaid.
A very common and straightforward asset to fund in a Medicaid Asset Protection Trust is your home and other real property. In most situations, funding your home in your trust will not change your quality of life, but will begin the protection of what is likely your most valuable asset. Many people choose to fund their home in the trust, while leaving their money out of the trust. Your home, and its equity, will be fully protected five years from the funding. You will continue to have complete access, control and ownership of the money that you leave in your own name, with the risk that this money out of trust will not be protected should you need Medicaid. If Medicaid is needed while you still have the money in your name, you may not be able to preserve the full amount, it may need to be spent down on your long term care expenses, or you may be able to implement certain crisis strategies to preserve all or some of the money at the time. But at least your home, and other valuable assets that you transferred to your trust will be preserved.
Case Study: Charlie owns his home valued at $900,000 and has $500,000 in his combined checking, savings, and investment accounts. In July of 2016, Charlie established a Medicaid Asset Protection Trust and transferred his home to the trust. He left his liquid funds in his own name. Since then, Charlie continued to live at home, and spent his money on his regular expenses and some nice vacations. In December of 2022, due to a sudden medical event, Charlie becomes a resident of a nursing home. He is interested in applying for institutional Medicaid. His home is fully protected in the trust, but he has $300,000 left in his combined accounts. In 2023, New York Medicaid resource limit is $28,133. He can’t transfer the rest of the money to his trust or a child because of the lookback period penalty. He consults with his elder law attorney, who confirms that the house is completely protected, and explores the best way to salvage the remaining funds and become Medicaid eligible. (If he was married or had a disabled child, he may have been able to preserve the full amount, but ultimately, a promissory note gift plan is used, also known as a “half loaf” plan, and he is able to preserve about half of his money while the remaining amount is spent on his long term care expenses.)
While he did have to spend some of his money on his care before he became completely Medicaid eligible, with the advance trust planning, Charlie was able to protect his valuable home, and enjoy his money while he was healthy.
With Medicaid planning, there is so much to consider, and the earlier you do, the more available options you will have to achieve more optimal results. As you head into your sunset years, the earlier you talk to an elder law attorney, the better off you will be.