Medicaid has strict limits on the amount of money a Medicaid applicant and his or her spouse can have (resource limit) in order to qualify for Medicaid long term care benefits, as well as specific income limits while receiving services. (See Medicaid Eligibility Limits for specific figures.)
In New York State, Medicaid Asset Protection Trusts and a Pooled Income Trusts are both tools utilized in asset preservation planning in connection with Medicaid long term care benefits. Medicaid is a federal program that is administered separately in each state. Therefore, the rules vary by state. The following will explain and compare a Medicaid Asset Protection Trust and a Pooled Income Trust as per New York State law.
Trust to Protect your Assets
A Medicaid Asset Protection Trust is set up to preserve a person’s assets in order to qualify for Medicaid long term care services without having to spend down those assets first. The person who creates and funds the trust is called the Grantor. The Grantor, or his spouse, would also be the future recipient of Medicaid services so in order to protect these assets, trust assets can no longer be available to the Grantor once funded into the trust. The strict rule of this asset trust is that distributions of trust principal can NEVER be made to the Grantor and his spouse, or to a third party for either the Grantor or his spouse’s benefits. This makes sense: if the assets were available to the Grantor, Medicaid would say “You don’t need our services, you have all this trust money available, go pay for yourself!”
It is recommended to set up a Medicaid Asset Protection Trust and fund it with a portion of your assets far in advance of your possible need for long term care because there is a “look-back” period and you want to be well past the “look-back” period by the time you may need care. (Read more about Medicaid Planning here.) You should always leave out of the trust enough funds to cover your expected expenses for the next five years (combined with your income).
A house is a very common asset to fund into this trust because it is usually a person’s greatest asset and it can be protected while still continuing to live in the house. But funding the trust with financial accounts should be considered preservation of the next generation’s inheritance. You should not plan to tap into any equity funded into the trust. Of course, we cannot 100% predict the future, so if access to the trust funds are needed in the future, there is a carve out in the trust to do so and it is possible to access the trust assets if needed.
Trust to Preserve Your Income
While it is advisable to set up and fund a Medicaid Asset Protection far in advance of your need for long term care, a Pooled Income Trust is applicable only once you require Community Medicaid benefits. When a person is budgeted for Medicaid home care services, they are allowed to keep some of their income, but if their income is over the allowable limit (Medicaid Eligibility Limits) they either have to contribute the excess income as a Medicaid “co-pay” or they can preserve it by depositing it into a Pooled Income Trust account. The money deposited into the account can then be used for the Medicaid recipient’s expenses. The Pooled Income Trust enables a Medicaid Community Care recipient to preserve his or her income while receiving Medicaid services.
The strict rule of the income trust is the opposite of the asset trust: Distributions from this trust can ONLY be made for the Medicaid recipient’s expenses.
The company that administers the pooled income trust is a non-profit and operates for charitable purposes. They get a small management fee each month for managing the trust accounts and paying bills on behalf of the Medicaid recipient. Any balance remaining in the trust upon the death of the Medicaid recipient remains with the charity.
Below is a chart that compares the differences between the two types of trusts.
| Medicaid Asset Protection Trust | Pooled Income Trust | |
| What Does It Preserve or Protect? | Protects Assets
(i.e. house, financial accounts) |
Preserves Income
(i.e. social security, pension, RMDs from retirement accounts) |
| When is it established? | Ideally, at least five years before Nursing home care is needed, and 30 months before home care is needed. (As of Oct. 2020, a 30 month look-back for community Medicaid became law although it has not yet been implemented as of Feb. 2022.) | Only at the time Medicaid home care or assisted living care services are needed |
| What can go into the trust? | Assets of the Grantor (who is the future Medicaid recipient) that may later be counted as assets for Medicaid eligibility
(i.e. house, investment accounts) |
The Medicaid recipient’s income (i.e. social security, pension, required minimum distributions from retirement accounts) |
| Can distributions of trust principal be made to the Grantor/Medicaid recipient? | NEVER to the Grantor/Medicaid recipient, his/her spouse, or to a third party for either of their benefits
ONLY to other named trust beneficiaries that the Grantor has selected for his/her trust |
ONLY to the Medicaid recipient
NEVER to anyone else |
| What happens upon the death of the Grantor/Medicaid recipient? | Trust is administered and distributed according to the terms that the Grantor decided during his/her lifetime. | The Pooled Income Trust Company retains the balance remaining in the Medicaid recipient’s account, for charitable purposes. |
| Who is in charge of the trust (i.e. Trustee)? | The Grantor chooses a trustee other than himself/herself or his/her spouse. | A not-for-profit entity administers and manages the trust. |
| Are there any fees to administer the trust? | There are legal fees to create and assist in funding this trust, but once established, there can be little to no cost in maintaining the trust. The Grantor can decide whether to allow compensation to the Trustee, but when it is a family member, often there is no compensation. | Yes, each pooled trust company has a schedule of fees. There may be start-up fees of several hundred dollars and then a recurring small dollar amount or percentage each month for the administration. |
Whether you won’t need long term care for several years or are already in need of care, our office can guide you through your options and optimal long term care planning strategies.
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