Dad died 5 years ago and there is a trust under his will for Mom. Will the trust be countable if Mom goes into a nursing home?
Mom and Dad set up an irrevocable trust years ago (Bill Clinton was on his first term) and put land and some other assets in the trust. Are the assets in the trust safe?
Dad has a revocable trust (although the front page says it is a “living trust”) he set-up several years ago. How will Medicaid treat that trust?
Get Your Head Around the Rules
To understand how Medicaid treats trusts, recall that Medicaid has three types of rules that apply to trusts (and many other assets). If you really want to read about those rules, you can on this website. Also, this discussion does not address special needs trusts, which are generally a whole other matter. But in a nutshell here they are:
- Medicaid has rules regarding what assets will be counted for purposes of determining whether someone will qualify for Medicaid. Some trusts will count; others won’t.
- If an asset does not count, but the applicant or her spouse once owned that asset (that is, they transferred the asset out of their names), Medicaid has rules that will “punish” the applicant for transferring or releasing title to the asset.
- If the asset is under the limit for qualifying for Medicaid or is not counted by Medicaid for eligibility purposes, the asset may still be available for estate recovery when the applicant dies.
Let’s take each of these general Medicaid rules and apply them to trusts.
How Does Medicaid Count Trusts?
It depends upon two things. Whether the trust is revocable or irrevocable, and whether the trust was set-up by the applicant or his spouse.
Revocable Trusts
If a trust is something like a bag to store assets in, then think of a revocable trust as a nylon mesh beach bag. Medicaid can see everything in it, and if assets are otherwise countable the trust doesn’t make any difference. That is (heh, heh) “plain to see.”
That is why most living trusts don’t do a thing for asset protection (although I do occasionally use them in advanced asset protection planning strategies).
Irrevocable Trusts
If the trust is irrevocable, things are a bit more complicated. Think of a black canvas bag with locks and 
buckles on it.
If either the applicant or his spouse set up the trust and there is any way (I mean ANY WAY) that any portion of the trust could be distributed to the applicant, Medicaid will count that trust portion. For example, if an irrevocable trust says that a trustee can distribute any amounts in the trust to Mom or Dad if he is in a good mood and it snows in July Medicaid will count the whole trust.
If Mom or Dad set the trust up and it says to distribute the income to Mom or Dad, but never to distribute principal to Mom or Dad (well . . . maybe the trustee could distribute principal to other people, just not Mom and Dad), Medicaid will count the income . . . but not the principal.
If the trust is irrevocable and someone other than Mom or Dad set-up the trust and put assets in the trust, Medicaid will count the trust only to the extent that the trustee MUST make a distribution to Mom or Dad. I said “MUST” . . . the trustee MAY be able to make a distribution and it won’t cause any Medicaid problems.
To recap: If Mom and Dad set up an irrevocable trust and there is any conceivable way, no matter how far-fetched, that the trustee can make a distribution: Potential Medicaid Unhappiness. If someone else set up the trust and put their assets in, and if the trustee has no legal requirement to make a distribution to Mom or Dad: Medicaid Happiness.
Trash the Rules If a Trust Under a Will is Involved
I lied. A little. The rules above do NOT apply if either Mom or Dad set up a trust under his or her will and his or her assets flowed into that trust. The trustee COULD make a distribution to either Mom or Dad (whichever one of them is left alive) and Medicaid will not count the trust. Medicaid will count the trust only to the extent that the trustee MUST make a distribution.
In other words, a trust under either Mom’s or Dad’s last will and testament is treated the same as a trust set up by some other person.
You want to know why? So do I. If you figure it out send me an email.
How Does Medicaid Treat Transfers Into a Trust?
Easy question. If the assets in the trust are countable, there is no Medicaid transfer penalty. If the assets in the trust are NOT countable under the rules above, there is a Medicaid transfer penalty.
Remember, the transfer penalty is “punishment” for transferring the assets out of your name, to a place where they cannot be counted, and then applying for Medicaid within five years of the transfer.
Once Again, What About Wills?
There is no transfer penalty if a transfer accomplished by will (including a transfer into a trust under a will).
What About Estate and Recovery and Trusts?
Another easy question. If an asset does not count because it was not available to the applicant at his option, then it certainly will not be available for estate recovery when the applicant dies.
This part actually does make sense. Assets in a revocable trust will be wholly available for estate recovery the same as if there was no trust. Assets in an irrevocable trust will be available for estate recovery only to the extent the trustee is required to distribute the assets back to the estate of the deceased applicant or to pay his outstanding claims.
For some strange reason I never drafted an irrevocable trust that way (you may now chuckle).
Great photo of old courthouse! Article helpful, too.
Thanks. I just snapped it quickly with my iPhone when I saw the light on the building. I was very surprised at how nice it turned out.
I hope you can help me, lol. If the trustee of an irrevocable medicaid support trust withdraws $10,000 from the trust and transfers it into the Grantor’s personal bank account, will this mean that the money in the trust will no longer be protected after the five year look back period? The trustee was told after he made the transfer, that he broke the rules of the trust. The Grantor then transferred the amount back into the trust which probably is irrelevant, he already broke the terms of the trust. This is what I’m guessing would happen. Am I correct? I would be extremely grateful if you could let me know!!!!!
Thank you sooooo much!!!!!
To err is human. As soon as Trustee was made aware of the mistake, the Trustee corrected it. I don’t see a problem.
Thank you so much!!!
Thanks so much!!!!
I have an irrevocable trust basically from an accident I got into it was about 50,000 I’ve been on Medicaid for 30 years I needed home repairs and my trustee gave me the money to pay the person to repair my home that fell in a hole it was about $20,000 and I paid them cuz they would not accept the check or money order being that the trust fund is for me and I’m on Medicaid this was a year ago you gave me the $20,000 I paid off the people how would that affect me the money is almost gone in the trust fund at the moment I bought a vehicle with it when I first got it so would that affect me in any way cuz I didn’t she gave me the money and I paid them for the repair it was almost $20,000 to lift up my mobile home and straighten it out because it fell and a sinkhole but anyway I didn’t hear anything from Medicaid so what do I have to do I mean I paid them I got a receipt and I and the receipt is with the trustee on file thank you
I don’t think there is anything to do. It reads like the money was spent on you or your home. As long as you didn’t get caught on the last day of the month holding more than $2,000.
Bob, You do have a way of making things fun. After 22 years of long term care I still get freaked out on Trusts. Keep’em coming. Enjoy that green beer lol. S York
Why thank you. And, yes, I did (enjoy a cold beverage). It was funny . . . the day after St. Patrick’s Day as I was leaving Savannah looked very quiet, people moving slow, not much traffic . . . if a city could be hung over . . . well . . .
Ok..interesting..will have my son read..I am totally confused at this point!…I JUST HOPE WE ARE OK..FOR ME DOWN THE ROAD.
You are.
My mom just died and dad made me co trustee of all his accounts in several banks. All with 500 k in them. He has living revocable trust. I’m on so disability and have been since 1999. I’ve had 10 back surgeries. I am on Medicaid and Medicare. I’m scared I will lose my Income and ins. I’m trustee when he passes. He just turned 79. Am I at risk to lose my income? I’m not to touch the money in trust unless he falls I’ll to pay his Bill’s or if he passes away. Will this effect my ss..Medicare or Medicaid? Thanks in advance.
You have a lot of issues . . . But many planning opportunities. Please do yourself a favor and see an Elder Law attorney who understands these issues.
Great article! Quick clarification about this sentence: “If someone else set up the trust and put their assets in, and if the trustee has no legal requirement to make a distribution to Mom or Dad: Medicaid Happiness.: When you say “their,” do you mean mom and dad?
For example, if child sets up irrevocable trusts and puts mom and dad’s assets in, but then there’s no legal requirements that the child make any distribution to mom or dad, is that protected?
No, no! When Ellen (not married to Joe) sets up a trust for the benefit of Joe, and Ellen puts her assets into the trust, if the trustee has no legal OBLIGATION to distribute to Joe (although the trustee MAY) the assets are not deemed available for Medicaid purposes. This most often comes up when parents or grandparents set a trust up for a child or grandchild.
The information was very helpful to me but can you answer me this: my mother in law had a will made 3 years ago. In it she left her house to my husband at her death. The will was in trust but I’m not sure which kind of trust. She has since takenout a loan and used the deed for collateral. She now has gotten in bad health and needs to be put in a nursing home. She can not financially afford to go into a nursing home. She still owes quite a bit of money on the loan, only gets $1600 Per month from social security, owes at least $3000 on charge cards and has little to no savings. Can she apply for help from Medicaid without involving the surrender of her house?
Medicaid does not count a residence for purposes of initial eligibility; however, it may be available for Medicaid estate recovery upon her death (it depends upon the trust arrangement and the facts given aren’t clear). I also caution that I may not give legal advice pertaining to a specific factual situation over the internet and in a comment box.
my mom set up a living trust in a checking account for me and I transferred funds out of it during the 5 year needing to pay expenses due to employment hardship…now mom needs to apply for Medicaid because she is going to be admitted to nursing home…since it was a living trust for me is this a Medicaid penalty?….The trust was done over 15 years ago.
What do you mean by “a living trust in a checking account”?
If I sign as co borrower to help my granddaughter and husband buy a house and it is then put in a trust…..is there any way this could affect me should I need to enter a nursing facility and apply for Medicaid?
This is difficult to answer, John, and you probably need to have an elder law attorney look at this because there are a number of factors to consider. For example, will you then be a part owner of the house? If so, the subsequent transfer to the trust might be a sanctionable Medicaid transfer. Or are you doing nothing but guaranteeing the note, in which case there might not be a problem.
Finally, I cannot give specific legal advice in a comments box . . . that wouldn’t be good for you . . . and for me because it could land me in a malpractice trap!
If you need help locating an elder law attorney, let me know.
Hi, Bob, Thanks so much for this site!! Here is my question – When trying to make sure we are within the 5-yr window for Medicaid, we are trying to make proper plans NOW for my mother-in-law. She currently has a revocable trust set in will. She is going into Assisted Living and will be eligible for VA spousal benefits we believe based on their formula regarding countable income less unreimbursed medical expenses. She has some savings that we want to protect and be within the 5-year window at the time she would need Medicaid in a nursing home. What type of trust do we need for her so that her money is protected while she is in assisted living…and to have her eligible for Medicaid within the window?
Sarah: I need to be careful answering legal questions online and without a formal client relationship . . . these answers are so facts sensitive and a correct answer can turn on a single fact. Your question raises some additional questions, however. I am not sure what you mean by a “revocable trust set in will”? A will does nothing until someone dies. A revocable trust in a will makes no sense.
A revocable trust generally does NOTHING to protect assets; irrevocable trusts are used for that. Transfers to an irrevocable trust are potentially sanctionable by Medicaid if you apply for Medicaid WITHIN five years of the transfer. So I’m not sure what you mean by “we want to protect and be within the five year window.”
Finally, keep in mind VA benefits also have an ASSET test in addition to an income test. She might meet the income test, but if she has too many assets (including in a revocable trust) she won’t qualify for VA benefits.
At the risk of sounding like I’m shhamelessly plugging attorneys . . . this is very tricky stuff and DIY can get you into a mess.
My attorney wants to set up an irrevocable trust for me and my wife. He claims you can write a note payable to the trust and after the 5 year wait period I can move my IRA ,after paying taxes, into the trust just before going into a nursing home and the funds will be protected from nursing home costs.
I meant to say before the 5 year look back period,
I don’t know, Charles. What would concern me is that if the note represents an amount that you didn’t actually borrow from the trust (in other words it is something of a “paper” or sham transaction) there could be some push-back from the Medicaid authorities in your state at the time you went into the nursing home. If you transferred your IRA net of taxes in to an irrev trust shortly before going into a nursing hom,e, the Medicaid folks WILL take a careful (and skeptical) look at what you’re doing.
You stated above:
“If the trust is irrevocable and someone other than Mom or Dad set-up the trust and put assets in the trust, Medicaid will count the trust only to the extent that the trustee MUST make a distribution to Mom or Dad. I said “MUST” . . . the trustee MAY be able to make a distribution and it won’t cause any Medicaid problems.”
Let’s say you didn’t want the irrevocable trust to be required to distribute all income to mom 5 years after it’s set up. Would it be good advice to have mom “gift” all assets to the children first, then have the children establish the irrevocable trust thus controlling the income distribution from the trust either to mom or the children? If mom files a gift tax return for the money gifted, and the 5 year lookback period has passed, the trustee could then decide who would receive income so both the principal of the trust and the income generation could be protected…
No. There is case law in which Mom gifted assets to the kids, then they set up a trust with those assets and the trust allows discretion to distribute to mom. In the case law the trust is treated as if Mom set it up. They sort of collapse the whole transaction.
If the trust is under a will, does it matter if the trust is revocable or irrevocable?
nevermind – as you say, a revocable trust under a will makes no sense.
Hello – I’m a bit confused. My mother is considering an irrevocable trust to avoid medicare getting the money (if she doesn’t need it in the next five year look back period). If I understand you correctly, is this the best way but she has to make sure the trust doesn’t pay her anything? She wanted to put in the irrevocable trust that it would pay her $10,000 a year to use at her discretion. Currently she has a revocable trust for the assets in question, so would medicare if she winds up using it (she has no long term care insurance and is 88 years old) go after a revocable trust after she dies? Thanks.
Anything in an irrevocable trust that could, under any circumstances, be distributed to her will be countable for Medicaid purposes. Any transfers to an irrevocable trust that result in the assets transferred not being countable for Medicaid purposes will result in a transfer penalty if Medicaid is applied for within 5 years.
Father passed. Mother (80s) sets up irrevocable trust with only daughter as trustee and sole beneficiary. Investment account and house put in trust. Investment account has stocks only with dividends as income that goes to money market fund in the investment account. If daughter as trustee distributes to herself from the money market fund, can it be considered under “gifting” by Medicaid ? If so, might it be better to distribute as “trustee administration fee”?
As I have written elsewhere, I cannot give legal advice online because I am not familiar with the trust involved, etc. That being said, if daughter is the only beneficiary, Medicaid would have treated it as a transfer when the trust was first set-up. Later distributions from the trust would not be deemed a transfer for Medicaid purposes . . . just the first transfer into the trust. If you want to be certain, you better have an attorney look at it (how about the attorney who first drafted the trust?).
Hi Bob, We set up an irrevocable trust and transferred Mom’s home into it. She sold her car, had to get rid of all her furnisture and belongings. She needed to move to assisted living and did. She lives in assisted living in a studio appartment with her only remaining belongings. Her house sold from the irrevocable funds and the funds stayed in the irrevocable trust.
She will be totally out of resources, no car, housem etc. Her incoming funds are about 4 000.00 dollars short each month. We have been helping by paying money into her personal bank account, indirectly of the irrevocable trust. She has no access to the irrevocable trust. I am using it to keep her bills paid and transfer the family funding into her bank account to pay bill monthly bills as needed.
Will she be punished or not elibible for Medicaid when her funds run out? It will be about 3.8 years after the house transferred in to the irrovocable trust.
Remember: I can’t give legal advice online . . . it might be wrong since I am not familiar with your case. That being said, if no distributions could be made to her, then the trust is not countable for Medicaid purposes. HOWEVER, if you apply for Medicaid within 5 years of funding the trust, they’ll apply a transfer sanction. While the trust cannot be used for her benefit, it may be that distributions could be made to other folks. What those other folks do with the money is up to them. You really should consider going back to the original drafting attorney and asking him or her if you are handling matters properly.
Our lawyer set up an irrevocable trust way over five years ago for my parents. It included their house, a piece of commercial property, and half a house inherited from my father’s mother. At the time, my father did not want to give up “control” of his investment account so that wasn’t put in the trust. His social security income was so small that he used the money from investment account to cover his large expenses like house repair and property taxes.
Two years ago, when my mother got cancer we changed that account over to the irrevocable trust. And since then my broter has been transferring money from that account, when needed, to pay these large bills.
This past summer when my mother died we went to the attorney and he reproached us for not “doing things wrong”. Apparently we weren’t fsupposed to be paying the bills that way….rather…pay ourselves from the trus and then pay my dad’s bills for him.
Needless to say we were mortified!
I have since talked to two different elder care services and they have both given me different advice.
What can we do, al this point. Help, if you can! I am totally confused. Sincerely Cindy
First, Cindy, I cannot give legal advice via a website combox. I may give you poor advice because I am not thoroughly familiar with the facts, the trust, etc. Any attorney would need to meet with you and examine all documents and facts. That being said . . . the original drafting attorney is
likely
correct. The trust
probably
said no distributions could be made for Mom/Dad. But, again, I can’t say that with any legal certainty. If you need a recommendation for an attorney to look at this, let me know.
If Mom and Dad set up an irrevocable trust, name themselves as trustees, and specify that they cannot distribute anything to themselves, would the assets be protected after 5 years?
Probably. I say “probably” because I do not like naming the grantors (people who setup the trust) as trustees, as well. No law will support me, nor counter me. I just don’t like the “optics” . . . the way it might look someday in the future to Medicaid agency.
Is the key to set up the trust properly or to set up both the trust and the assets within the trust properly? In other words, if mom and dad have been working with a financial advisor for years and are happy with their investments, can those investments simply be transferred into the newly set up trust or do the investments need to liquidated and a special set of investments be purchased by the trust?
I met with a representative from a financial services company, and the rep made it sound like we would need to purchase a certain type of annuity from them to pass the medicaid tests. Am I correct in saying that we do not need to purchase any particular type of investment vehicle but just need to transfer the current assets into the properly established trust?
YES! (Both)
YES! No special investment needed. You can transfer anything (other than qualified money like IRAs) into the trusts.
HORSE FEATHERS! Ask him/her how much commission they’re getting on the annuity! Your last sentence is correct. However, sometimes I do advise annuities, but usually at a time when someone is just about ready to go into a nursing home and we’re running out of other ideas.
If I create an irrevocable trust funded with my house and land, and include my IRA accounts stating that only my RMD may be paid to me but the principle is not payable to me by the trustee and naming a son as benificiary of the trust.
1) Is that trust available to a medicaid estate recovery for my spouse who received medicaid for long term care after her death ?
2) Also is it available to medicaid if I, the community spouse, die before or after the aided spouse dies ?
In other words can an irrevocable trust protect those assets completely from the estate recovery process leaving them to my son ?
This is in Tennessee.
The problem is if you transfer your IRA to a trust, it will be a deemed distribution and you’ll be taxable on the entire value of the IRA. That is a matter of federal tax law.
Hi Bob,
Am I reading this correctly? Are you saying that it is possible to avoid the transfer penalty (5 yr wait period) if you structure the Trust and Will together properly whereas if you don’t you are vulnerable to the 5 year rule? My mom is in perfect health and I want to do a trust now in case she has to go into long term care (not likely but who knows!) and it’s a bummer I have to wait 5 years for all this planning to be effective (protect her assets so I will inherit them). A race against the clock. I live in NJ. Thanks!
I cannot give legal advice in a comm box or outside of North Carolina and Georgia. That being said, it looks like your reading is correct. “On your mark, get set, GO!” See you in five years. By the way, in North Carolina I use a technique for married couples that completely avoids the five year period . . . but that is waaay to complex to get into here.
Bob, my wife and I turned 65 this past June and I am starting to do my estate planning. I am really hung up on my $1m IRA and trying to protect it from Medicaid. Doesn’t seem to be many good options. One I used before with my mother was to establish an annuity, I was the owner and she was the beneficiary, but made no distributions to her. It was not counted for Medicaid, since it was over the look back period, She past in December 2016. The problem is that I need the income to live on, not just pass it on to the kids. I only have the IRA and Social Security for income. One idea I had was to set up a variable annuity in my IRA, I am the owner and annuitant, my wife and kids would be the beneficiaries and then run my withdraw’s through a miller income trust, along with putting the house into an irrevocable trust. Any thoughts in protecting an IRA? It is generating about $48,000 a year in dividends and interest income. Thank you.
Joseph: You have a complex issue and I cannot answer in an online comm box (and any answer I’d hazard wouldn’t do you any justice). My suggestion is you make arrangements to see a knowledgeable elder law attorney AND a financial advisor.
I live in Illinois. My dad passed away in August of 17. He transferred a beneficiary IRA to me in Feb 2016. The IRA is now transferred to me after his death. He also gave me the title of his car before he passed. My mom is in a nursing home and on a spend down to $2000. She will be down there in a few months. Do you think the car and IRA will be safe in order to get my mom approved for Medicaid?
First of all, you’ll need to consult an Illinois attorney for a definite answer. Let me know if you need a referral.
Not sure what that means. Did he name you as a beneficiary? If so, you’re PROBABLY OK. The transfer of the title to you before he died will likely be treated as a sanctionable gift. They’ll be “safe” (meaning Illinois won’t take them); however the state may not approve your Mom for Medicaid for a time depending on the value of the car.
My Sister has a Revocable Trust she set up with her husband, now deceased, which she amended with herself as Sole Trustee and all proceeds to go to her 2 children upon her death. There are 2 life insurance policies in the Trust, one for each of her children, with her and her deceased husband as beneficiaries. They were originally purchased to use towards their funeral expenses when needed but this is not stated either on the policy itself or in her Trust. I’m in the process of gathering all necessary paperwork to apply for Medicaid because she is running out of funds and is going to move into a Nursing Home shortly. I need to know if she’s required by Medicaid to cash in these insurance policies and use the money to pay towards her Nursing Home expenses.
It depends entirely on what state you are in and that state’s rules. The North Carolina explanation is HERE.
Hi Bob,
I would like to transfer rental real estate into an irrevocable trust. For tax purposes I would like it to be treated as a Grantor Trust but I would prefer to have the income retained by the trust for future investment. Neither income or principal would be available to me yet the income would show on my 1040. How would Medicaid view this situation? Is the income countable?
Thanks
It depends upon your state and how strict your Medicaid program construes certain retained powers used to create a grantor trust. For example a so-called “power of substitution” creates a grantor trust without any income being distributed to you. Most state Medicaid programs would not view that as rebndering assets available/countable, but SOME states do.
Also, keep in mind that if you fund an irrevocable trust that renders the assets unavailable, you still have to concern yourself with a potential Medicaid transfer sanction if you apply for Medicaid within five years of the transfer.
Does the 5 year look back period apply to Medicaid home care? If the home is in a revocable trust, can it be quit claimed into a new irrevocable trust, with children as trustees & beneficiaries, & protected from estate recovery after 5 years have passed?
It depends. Transfer sanctions (applied to transfers made within the past five years) do not apply to all Medicaid benefits. Generally transfer sanctions apply to nursing home benefits, personal care services, and certain home and community based services.
A home in a revocable trust probably can be transferred to an irrevocable trust, as long as you can handle the potential Medicaid transfer sanction that could apply to certain Medicaid benefits applied for within five years.
If title to real estate property is held solely in my name but is placed in a revocable trust where I’m 50% trustee and 50% beneficiary, will Medicaid count the property solely under me? For exemption purposes, is the value of the property split between the two beneficiaries? Also, if the other beneficiary, my sibling, needed Medicaid, would they count it as part of his asset base since he is 50% beneficiary even though he is not on the title? If necessary, can he transfer his share, if he needed Medicaid without penalty during the Medicaid look back period (using the sibling exemption rule)? After the transfer, is there any way for Medicaid to later attach to the property upon his death via estate recovery?
I’m really not sure what you’re asking. Are you saying that your brother and you are both trustees of a revocable trust and both the equal beneficiaries of the trust? If so, any assets in the trust that are countable for Medicaid purposes will be countable. Your state program would LIKELY treat his 50% as his, and your 50% as yours. I don’t know from the facts given if any sibling exception applies. That exception applies to transfers to a sibling who had an equity interest in the residence of the transferor and who had ALSO been living in the residence for at least a year with that sibling.
If a transfer has been successfully made, then there is no way that Medicaid can assert estate recovery against that asset . . . it’s gone!
We are setting up an irrevocable trust for FIL. Going to put almost all his assets (house and cash) into the account. My concern is if FIL has to go into NH before 5 year look back period is up, where would the money come from to pay for the NH? Lawyer says in case his money runs out before 5 year period, FIL (trustee) can give money to daughter and she can pay NH costs. I’m talking about using PRINCIPAL, not income from the trust. I thought this was not allowed because Medicaid will say trust is being used for FIL benefit. Is this correct?
Noel, I do not give legal advice via comm boxes on the internet; nor do I like to “second guess” the work that some other attorney (who is much more familiar with the facts) is doing. That being said, it is my OPINION (that other good elder law attorneys disagree with . . . and others agree with) that the “optics” of having father-in-law trustee of his own asset protection trust are not good. You will NOT find a rule out there that supports my opinion . . . it is just a matter of how it looks. In this case, if FIL needed cash, FIL distributed to daughter, daughter then paid FIL bills . . . it just looks a little “collusive” (to use a word we have been hearing every day). I much prefer using someone else as trustee. If trust agreement gives right to distribute principal or income to other people, and later on other people decide they want to help FIL out of the goodness of their hearts, then more power to them. Again, this is not legal advice and doesn’t come close to exploring all of the angles.
question about gifting house to daughter and the medicaid 2 year rule. daughter has taken care of father for 2 years. father wants to buy another house, if the father buys another house, does a new 2 year period start for the daughter?
2nd question. does the house have to be of equal value. original house worth 300K. new house around 400k. father and daughter need bigger house.
i understand father has to go into an institution directly from the house to be able to gift house to daughter and not be counted as asset from Medicaid.
Let’s clarify: For the exception to apply, (i) daughter must have been living IN the residence with father, (ii) for a period of at least two years, and (iii) MD must certify that BUT FOR the fact that daughter had been living with Dad, he would have been in a nursing home at least two years ago.
I have never had the situation arise in which parent wanted to “trade up” to a bigger home during the two year period. A plain reading of the federal statute seems to support it, but you could very well get some argument from your state’s Medicaid program. Nor do I believe the new house must be of equal or lesser value . . . I would think a trade-up would be fine. But, again, that is my OPINION. You might very well get some pushback from the state, which is why you may want to consult with a GOOD elder law attorney in your state. If you need a referral, let me know by emailing me directly.
Bob – I know this is just your opinion and not legal advice. My parents are both at the poverty level in Mass. They had lived with my grandmother for over 10 years. 6 years ago I had her sit with a lawyer to get the house out of my 90 year old grandmother’s name to start the 5 year clock. The lawyer did a quick claim for $1 to my mom. A few years later my mom’s siblings had her quick claim the house into a Revocable Realty Trust. Luckily we got the house out of my grandmother’s name when we did, because just after the 5 year expired she required months of long term care which medicaid pick up. My concern now is my parents. Because the house was put into my mom’s name and now she owns 1/5 of the trust, this is a Countable Asset. I need to get the 5 year clock running on my parents. I think it is as simple as paying the lawyer to take her name off the trust and put me and my brothers name on for her 1/5 share. They do not file tax returns so gifting it too us should not be a problem if this is even considered a gift for tax reason. They have around $20k in a savings account that I think I should have her start to gift to me as well to get below the poverty line to qualify for masshealth. Please confirm with your thoughts.
Much of what you mention would likely work in NC . . . but I have no idea about Mass. You’re thinking of the right things, but you should really think about seeing a qualified elder law attorney in Mass . . . in the long run it could save both money and grief.
Bob
Regarding IRAs to a Trust:
We are setting up an Irrevocable Grantor Trust for a couple for medicaid purposes. One of their assets is an IRA that they want to protect as well. If, as I mentioned, this is a Grantor Trust, can we put the Trust as the owner of the IRA and simply make the required monthly income payments to the couple (the income i am aware would be counted as a resource)? Would the the principal of the IRA be protected?
Thank you
You’re asking for trouble. If you transfer or assign ownership of the IRA to this trust it will be a deemed distribution and the entire IRA will be taxable. See, e.g., IRC sec. 401(a)(13), which applies to IRAs. There are more sophisticated methods to attempt to protect an IRA than this.
My mother was admitted to a nursing home 8 years ago. She had 1/3 interest in an undivided 30 year land/farming trust and the trust was not counted as a resource but proceeds were counted. She died and there is 4 years left on the trust. Since she had no access to the trust other than to receive net income from farming operations, does asset recovery apply to the trust when it dissolves in 4 years?
My grandmother has early dementia, and is going to rehab for three days, then, maybe to assisted living. She worked hard to buy a small home, and hates to think it will be auctioned off because she will need medicaid to assist medicare in paying for costs in assisted living. Is it to late for a irrevocable trust to be set up? Her cash assets are 2,000$. Her house value a mere $74,000 tops! This is in North Carolina
It really is too late for a trust. There may be some other steps that can be taken to protect the house from possible estate recovery, however.
Lots of informative questions and responses above. It is wonderful that you do this.
Long ago, my parents tried to set up trusts under their wills to avoid some or all estate taxes when the second died. The lawyer dawdled and it didn’t get completed before my father died in 1995. I’ve been thinking that since the estate tax limits (federal and state) subsequently got raised beyond the current estate value and is likely to stay above the value, it no longer matters. Reading what you wrote, maybe it does matter. It looks like a trust under his will could have (if done correctly) protected those assets from Medicaid if my mom goes into nursing care. Do I have that right?
To clarify and confirm: (1) An IRA can’t be moved into a trust without cashing out. (2) A Roth has no immediate tax consequences but it has to be cashed and future earnings will no longer be tax free except for unrealized cap gains at death. (3) For big IRA accounts or nursing home stays that end up being rather short, using a trust to avoid Medicaid look-back can easily increase cost, right?
Yes, if correctly drafted, the trust under your will could theoretically protect for Medicaid purposes. Unfortunately, most of those trusts allowed for distributions for the “health, education, maintenance, and support” of the surviving spouse (I know . . . back in the 1980s and 1990s I drafted a ton of those trusts). If the trust under your Dad’s had been setup, it likely would have had that language, and it wouldn’t help from a Medicaid standpoint. So don’t beat yourself up too much over that.
As for your second paragraph: (1) Correct. (2) Correct. (3) Correct. You have to analyze the situations carefully. I’ve told any number of families not to cash in an IRA simply to qualify for Medicaid when the tax cost of cashing in might have been $40,000 and you’re looking at paying the nursing home just a few months. On the other hand, if it is a married couple there are all sorts of creative approaches with IRAs . . . but I ain’t touchin’ that here! That is a topic for another book!
I went from a Google search to this page and it took me a bit to find the link to back up to the master list of issues. (the link text is partly cut off on the IE version I have). Anyway, I found answers to my 3 numbered questions and I’m more certain about the other question. Appreciate any additional comments you have. Thanks.
Hi Bob,
Thank you for providing such helpful information about trusts and planning. I was hoping you could help clarify something for me: My mother was told she has too much money/assets to ever qualify for Medicaid, so a revocable trust was created 2 years ago when she was first diagnosed with dementia. I thought that was a mistake at the time since I’ve always believed that irrevocable trusts are the only way to truly protect assets, but I was overruled by my older brother 🙁 I don’t know exactly how much her assets total, but let’s just assume it’s around $2million for arguments sake.
Is it true that one can have too many assets in an irrevocable trust to qualify for Medicaid? She has LTC insurance ($400 per day once we trigger it), but that’s only good for 5 years. It’s possible she will live longer than that and then we are paying fully out of pocket. Should we revisit the elder care attorneys and create an irrevocable trust now?
Thanks so much. I realize you can’t give specific legal advice, but any clarity would be appreciated.
You are correct. In this particular case the revocable trust has ZERO asset protection value. An irrevocable trust was the way to go.
When she funds an irrevocable trust, it will be a transfer for Medicaid purposes and will be reviewed for a transfer sanction if she applies for Medicaid within 5 years. But that shouldn’t be a problem because she has 5 years worth of LTC insurance and plenty of other assets to get through the 5 years.
I’d suggest getting set up with the irrevocable trust now, and at least get that “5 year clock” running.
Thank you so much for your prompt reply. I will try to get that ball rolling! Have a great day.
Hi Bob,
Thank you for such helpful information. My parents set up an Irrevocable Grantor Trust a year ago to protect their assets and home for Medicaid eligibility. The trust was drafted so they could collect income but not principal off the assets in the trust. Will this create an issue for the five year look back? Also, as trustee, I’m confused about how to file taxes. The trust does not have a separate tax ID number, and uses my one of my parent’s TIN as its ID. According to our attorney, the trust doesn’t need to file a return. Instead, my parents include its income on their return. My accountant is not familiar with this approach, and believes the trust needs its own TIN. What has been your experience with tax reporting for Irrevocable Grantor trusts?
As the article explained, transfers by your parents of some of their assets to an irrevocable trust does create issues with respect to medicaid transfers. if one of them goes into a nursing home within five years the transfer will be reviewed and sanctioned.
A GRANTOR trust is taxable to the grantors (the folks who set the trust up) and if it is a wholly GRANTOR trust their is no need for a separate tax ID, the SSN of the grantor is sufficient. I haven’t reviewed this trust, of course, but from what you have written it seems your attorney is correct and your accountant is not.
Thank you. I appreciate your timely and thoughtful response. Out of curiosity, when the Grantor dies, do we still file returns for the Trust under his/her TIN?
No. When the grantor dies the trust is no longer a grantor trust and, to the extent you don’t immediately distribute the trust and it has income, you’ll need a new trust TIN and to start filing trust tax returns (Form 1041).
I thought it was interesting that most living trust don’t do asset protection. My dad will turn fifty this year, so I think he’d be interested in reading this article. Where can he learn more about it as well.
Right here!
Bob:
What trumps what – the five year lookback period or the structure of the trust ?
That is to say, let’s say Dad establishes an irrevocable trust using daughter as trustee, but does give daughter power to distribute the principal of the trust to Dad in daughter’s discretion. Seven years go by, before Dad needs to make a Medicaid application. Will Medicaid consider the assets in the trust as not resources because they were transferred outside the five year window or will the provisions of the trust cause those assets to still be considered resources available to Dad ?
I believe Dad has problems. Because there are circumstances in which trust asset COULD be distributed to Dad and he funded the trust, I believe it is likely the trust assets would be countable.
My in laws put their house in a trust many years ago. They are the trustees. My mother in law has dementia and they have moved in with my sister in law. They have offered to sell their house to us and carry the mortgage under the trust. It looks like my mother in law will have to go to a facility within the next year. Can Medicaid come and take the house from us when she dies?
It depends upon the trust. Is it revocable? Irrevocable?
I have a question about a Irrevocable trust? If the wife of the Husband is in a nursing home, the husband then places his home in a irrevocable trust with his son as a power of attorney. At the time when the trust was made, the husband was in sound mind and physical condition. Approximately one month later the husband becomes ill and he ends up in the nursing home a month later and subsequently dies within two months period clearing himself of expenses but can medicaid come after the irrevocable trust for expenses involving his wife while she was in the nursing home because technically the husband was in full cognizance when he originally set up the trust and it so happened he did not outlive his spouse?
First, I cannot give you a definite legal answer without reviewing the trust and all the facts. That being said I THINK the trust is likely OK and not subject to estate recovery. Probably. Husband funded the trust after wife was in NH and on Medicaid. Transfers by husband AFTER wife on Medicaid would only affect HIS possible eligibility for Medicaid . . . and obviously that won’t be a problem now. By time he died those assets were in a trust that shouldn’t be subject to Medicaid estate recovery on account of wife’s benefits. PROBABLY. The only think I can tell you DEFINBITELY is if it becomes an issue you DEFINITELY need to see an attorney who understands this stuff.
Thank you
My attorney set up an irrevocable trust so my now dead husband could get VA benefits for his assisted living. It was set up 4 years ago. This trust is not huge. Only 85,000. He only lived 4months but did get the benefit. Ended up not worth it as he had to cash in retirement accounts to put $ in the trust.
I have been living in our house but it is too large and inconvenient. I was told I still had to pay taxes and repairs. House is 100 years old and a money pit and I would like to purchase a condo. I tried to rent but rejected for a lease because my only income is social security.
My daughter is willing to pay cash for a condo for me and I would reimburse when present money pit it sold.
Doable? Thanks.
Would I be able to live in another small house or condo rent free?
I’m not sure what a trust has to do with any of this. Your attorney set up a trust for your now deceased husband about 4 years ago. There is about $85,000 in the trust. OK. I understand.
Now you want to sell your 100 year old house and downsize to a condo. Your daughter is willing to either buy the condo or give you a bridge loan until the 100 year old house can be sold. OK. Sounds like a plan! Or am I missing something?
My brother is 59 years old, he has been receiving SSDI and Medicaid for about five years, and he owns his home and one old vehicle. He is still living in his home but may need to be moved to a residential facility at some point in the future. I am the only living member of his immediate family, and his will leaves everything to me. Medicaid has already spent many thousands of dollars on multiple hospitalizations, prescription drugs, and doctor visits. Medicaid payments to date could well exceed the value of his home. Is there any hope of being able to avoid Medicaid Recovery? Possibly a Medicaid Asset Preservation Trust? Or is there nothing that can be done at this point because of the look back period?
Sorry, but I cannot answer detailed legal questions regarding your case (for ethical and malpractice reasons). That being said, much depends upon what state you live in. You have enough at stake and enough issues that you really need to see a knowledgeable elder law attorney. Let me know if you need some suggestions on who to see (it all depends upon where you are).
Dear Mr Mason, first thankyou for all the help you give here. My parents set up a living trust on there two family home. They were the Grantor, my sister and my self were the Grantees. That was done in 2004. Fast forward to today, my father died last month.He was taking care of my mom, who has dementia, and alzhimers. Right after funeral we found a nursing home for her. She is on straight medicare now, we are paying the 167.50 per day copay till the 100th day. Then the home will file for medicaid. Total in her name 100,000, we understand there will be a 5 month panelty. At 10,000 per month. A promisary note will be drawn up for the 100000, hopefully saving half of the 100,000. So 50,000 will be paidedfrom the 100,000 before medicaid kicks in.
Question is does this all sound correct.
Question two the living trust was set up to protect the home from medicaid, to have a home for my paents to have to live forever, and to establish a stepped up cost bases when both are gone. Being she will be in long term care nursing home for all her days. Do I have the right to sell the home, We have power of attonney. If so whos money is it, my mom or my self and sister. If Moms no good for medicaid purposes correct. And if ours Do I loose the stepped up cost bases. I understand the purpose of the Living trust is to protect the Grantor, My mom. That being said she will never be able to live on her own in her condition. Any guidence will be appreciated. Not renting now, they never did.
I cannot answer detailed legal questions regarding your case (for ethical and malpractice reasons). That being said, much depends upon what state you live in. You have enough at stake and enough issues that you really need to see a knowledgeable elder law attorney. Let me know if you need some suggestions on who to see (it all depends upon where you are).
I want to create an irrevocable funeral trust for my mom who is on Medicaid. Shall I create a trust in her name or my name. Can the assets be used for my mother if the trust is in my name. Please help. I am getting confused and lost in all this legal matter..
Probably in her name. But you should check with a Florida elder law attorney.
If I create a trust into which goes pension payments, would Medicaid’s 5 year look-back apply to the start of the pension payments or would it apply to each of the payments? For example, if I create the trust today, and apply for Medicaid in 8 years, will Medicaid look back at the deposits of the pension payments in years 6, 7, and 8 and thereby establish an ineligibility period?
Your questions raise other issues. But in any event, if you establish an irrevocable trust over which you retain limited (or no) rights to distributions the contents will not be deemed available, but EACH contribution to the trust made within five years of applying for Medicaid will be subject to a sanction.
My mother left myself and my sister an inheratamce. My sisters was to be put in a irrevocable trust and me as trustee. Distributed by me for health maintenance welfare. She is currently on Medicaid in pa. Will this effect her Medicaid? If so how please
If you are the trustee of a trust for your sister that requires you to distribute to her for her health, education, or maintenance, then YES it will be a problem for your sister’s Medicaid. You should consult a Pennsylvania elder law attorney. Let me know if you need a referral.
its worded under my sole discretion for Health Welfare maintenance. Does that make a difference – it was a testamentary under a will and now irrevocable trust WHo is responsible for reporting to Medicaid the trustee or beneficiary?
Very tricky. It’ll depend your state’s law and the exact wording of the trust. If the trustee has an obligation to distribute for her health or welfare (I know it says “within sole discretion” but the trustee has an obligation to act reasonably and in good faith), then it could be countable. You’ll need to consult with a knowledgeable attorney in your state. It is ultimately the beneficiary’s responsibility to report anything that could affect her continuing eligibility.
I established an ‘Income-Only Trust’ for my mother in Montana more than five years ago to protect property that she owned should she need to go to nursing care. Now she does and I am trying to determine if the Montana Trust will be recognized in North Carolina if I move her here. I am named as the Trustee. Are Trusts transferrable from state to state, specifically MT to NC. A MT attorney told me a NC lawyer would have to review it for Medicaid purposes.
The trust IS transferable. The exact wording is critical. The Montana attorney spoke wisely! You need to see a NC attorney.
Bob – My mom set up an irrevocable trust (complex trust) in 2011 which means we are past the five year look back period. She put everything in the trust, house, land, gas well income, and rental income from house as she now lives with me. It does state in the trust that it can be used for her needs but at my discretion, as I am an only child, trustee and sole beneficiary. If she should require nursing home care are all the assets safe in the trust?
Brenda: Please read the first three paragraphs under “Irrevocable Trusts.” From the way you described the trust it is, unfortunately, a countable asset because there are circumstances in which the trustee (you) could make a distribution for her benefit. Sorry.
Bob- my sister has been living in an assisted living center in Illinois for almost a year, which is primarily paid for by Medicaid (she does get SSI, but all of it except $90 is paid to the assisted living center). My mother passed in late 2018 and she had a $10,000 life insurance policy from an old employer for which my sister is the beneficiary. For a number of reasons, the paperwork for the life insurance company has just been sent in for processing. Is an irrevocable burial trust still possible, even though my sister is already on Medicaid? I ask because a lot of folks talk about getting the burial trust or pre-paid burial BEFORE trying to get their loved one eligible for Medicaid. Thank you!
As long as you do something with the funds before the end of the month in which the funds are distributed to your sister, she’ll be fine. Theoretically, you could have a first party (or payback) special needs trust done, but that is sort of silly for $10,000. A funeral trust or irrevocable funeral policy would be one good bet (I just don’t know what the specific Illinois rules are).
I have been on Medicaid for several years. I just received a large trust payment. Can Medicaid come after that money?
It depends what kind of Medicaid you’re on as to whether Medicaid can “Come after” the funds. Regardless, the funds will likely disqualify you from Medicaid because you’ll have excess assets. There are some trust options you could take to retain Medicaid qualification.
Hi Bob, two quick questions: 1) grandchild owns home outright and grandmother lives in it. Grandchild later adds grandmother to deed. Grandmother goes into nursing home. Can Medicaid seize house or try to recover after her passing?
2) Grandmother in 1) is beneficiary of trust established by another person (deceased) and receives monthly income. Grandmother goes into nursing home. I understand the income from the trust would be fair game, but can Medicaid seize trust or try to recover after her passing?
1) Grandmother’s share probably subject to estate recovery. Why on EARTH did they put her on the title in the first place?
2) Probably not subject to estate recovery. Depends what the trust agreement says to do upoin grandmother’s death.
Thank you for doing this. More than you know.
husband diagnosed with dementia 2.5 yrs ago – not incapacitated.
Had Grantor Irrevocable trust done 2021 – still able to make changes.
Plan to place personal home & 2 income properties into it. Husband cared for at home as long as possible. Praying to make the 5 year mark.
Lawyer made me/wife the trustee. Is that ok – will that be ok w/medicaid? (Myself and husband would be the grantor of assets).
Adult Son is the beneficiary. Is written that son can receive from trust at discretion of trustee. Trust states income from income properties can go through my TIN for yearly income taxes & income then to me.
Or, should income go to son and through his TIN to not count against medicaid?
I still can make changes to the trust at this time.
Can I sell the personal house and buy smaller house for us to live in and put new house in trust as a replacement of the original principal house and not be penalized?
Will 5 year look back restart at the time of sale/purchase of new house or time of creation of trust?
Does it matter that I sold and bought a house within the 5 year period to medicaid?
sign
– scared
So, the trust was just done very recently? (2021, NOT 2012?). Different lawyers have different philosophies about grantor (you) also serving as trustee. From a Medicaid standpoint, there is nothing to say it can’t be done. On the other hand, it seems funny to me, so I don’t allow it. Again, reasonable and competent lawyers can disagree on this point.
Sale can be made and everything reported on your SSN, not son’s. OK from a Medicaid standpoint.
The 5 year clock begins to run when the trust funded, and subsequent transfers out do not affect that.
What state are you in?
Wisconsin.
Thank you for taking the time to chat.
2021 February the trust was drafted. The attorney did not seem to know answers so I did not finish/sign the Grantor trust until I studied more. Thus, you……
They got my money though. So sad about them not letting me read the documents before paying. I am in so much suffering and turmoil over my husband’s illness and now this mess.
I appreciate your help so much.
1. Does an inheritors trust, set up by parents for benefit of adult child, qualify parents for Medicaid protection, provided the 5-year look back period has lapsed?
2. Once an irrevocable trust is set up, may others (not the grantors) make gifts to or list the trust as POD or beneficiary? Does this affect grantor in any way?
3. Is there an irrevocable trust that will provide Medicaid protection for both the grantor and beneficiary, while still allowing for possible, but not required, distributions of income or corpus to the beneficiary or on the beneficiary’s behalf?
4. How would one go about avoiding GST (generation skipping tax,) after the death of the grantors, for successor beneficiaries? Decant the original trust into another trust?
Thank you for being so willing to answer questions!
1. Not really sure what you mean by an “inheritors trust.” In any event, it would be impossible for me to say without seeing the trust.
2. Other people could contribute, if the trust agreement allows it. The tax situation might become a bit more complicated. Without seeing the trust, I can’t say. Part of the trust might be taxed one way (the part that represents what the grantor put in) and the other part (the part contributed by others) another way.
3. Yes.
4. Why are you worried about GST and Medicaid at the same time? GST doesn’t even kick-in unless we’re talking a very large estate ($12.06 MILLION).
What kind of payments count as income from a discretionary supplemental needs spousal testamentary trust for medicaid in Massachusetts?
– payment of the credit card statements of the beneficiary
– providing free rent
– the fair market value of a second home, whether or not rented
– payment of an oil bill to the oil company
– payment of a phone bill
The regulations are confusing. I can’t figure out if it’s payments “to or for the benefit of” or payments “to” that applies here. In other words, it 520.024(2) because established by spouse (whether or not by will), or is it 520.024(4) because established by will (and therefore not by a living spouse), or is it neither (because testamentary not irrevocable).
Sorry, Betty, but I have no idea because I am not a Massachusetts attorney.
In regards to an irrevocable Medicaid trust. I (aged 61) am the trustee for my brother’s (aged 67 w no real health issues) Special Needs Trust. I want to create an irrevocable medicaid trust (with son as trustee) now years ahead of need and fund it with a small non income producing asset. Upon his death I want to distribute the remaining assets to irrevocable Medicaid trust for me. As opposed to direct transfer to me then to medicaid trust. Would transfer of assets from a SN trust by the trustee (when the trustee is me) have an effect on the lookback period if I was to need nursing home assistance in a couple of years after that? Or would the transfer have no effect (desired outcome) In other words, is it worth the effort to transfer from trust to trust?
Also does a medicaid trust require specific clause stating the purpose is for Medicaid, or simply needs to meet the requirements as you have detailed above in many places?
I would have to see the trusts involved before giving any answer. Also, Lisa, I cannot give specific legal advice online with respect to any individual’s specific legal issues. With respect to your last question, it depends. Is it a self-settled/payback special needs trust funded with the beneficiary’s assets? Or is it a third party trust funded with someone else’s assets (e.g., a parent, grandparent, etc)?
My husband and I created an irrevocable trust that lists my parents and my brother as the beneficiaries. Distributions are not required and to be given at the discretion of the trustee (myself). Based on what I read above, I believe it’s assets would not count towards medicaid eligibility for my mother. Is that correct? Thanks!
Correct.
Thank you for all you do!
Mom set up a medicaid irrevocable trust 3 years ago with my sisters and I only as recipients of that trust.
Mom was married, but her and her husband kept all their financial assets seperate except for a shared checking account in both of their names that was not put into moms trust. Her husband was not mentioned as a beneficiary in the trust. The trust only mentioned him as her spouse.
Mom never went on medicaid. My sister( trustee) paid moms memory care costs out of the trust. Mom recently passed. It is my understanding that the trust is now solely my sisters and mine.
Mom’s husband is now in memory care and needs medicaid.
Can medicaid come after our irrevocable trust just because mom was married? They had no assets together except for that 1 checking Acct. Which would be his now that mom is gone.
Forgot to tell you we live in Oregon.
Probably not, but I’m not an Oregon attorney. You’ll need to check with an Oregon attorney.
Hello. If an irrevocable trust was set up and it contains just the primary residence of a single individual, and that individual enters a nursing home three years after trust was set up, will there be a penalty delay in Medicaid paying for the nursing home?
It sounds like there would be NO penalty delay if the trust was never set up, but the trust would have protected from Medicaid recovery from the Estate, but only if the 5 year lookback period had been met?
Thank you.
Correct. Trust protects from estate recovery immediately, but if the applicant applies for Medicaid within 5 years of funding the trust there will be a sanction (period of time no Medicaid payments) to contend with.
Thank you so much. If I may ask one more question, if the individual wants to move, before the 5 years, is it the trust /beneficiaries that would have to list the home etc. and they receive the proceeds?
It depends what the trust says. If the residence is sold at any time it is in trust, the trustees are the sellers and the sales proceeds will go into the trust for distribution according to whatever the trust says. The timing of the sale has nothing to do with the transfer sanction that was incurred when the trust was set up.
wow.. glad i found this site… question, my mom had an payout from an accident…. she’s on medicaid.. she put this settlement into an irrevocable trust with me as the trustee…. if this money isn’t touched and she nor my dad use this money for long term care and they pass… does this money come to me as the trustee? what are the tax implications for me at that point? what are the estate issues? or are there none cause i’m the trustee? thank you
You have posed more questions than I can possibly respond to in a com box and without having seen the trust. There are all sorts of issues with the trust and her being on Medicaid. I suggest you consult with a knowledgeable attorney near you.
Hi- are attorneys or lawyers required to notify the Medicaid agency in their state when they create a first party Special Neets Trust for someone? I have tried to research this answer and cannot find a definitive yes or no answer.
Yes. You are supposed to notify the local agency and if your state has an approval mechanism put the trust through that.
Hello sir, I have a question.my late dad setup a revocable trust in 2005.he listed me as the trustee.he passed in 2010(my mom passed in 2002).in the trust their is a house and a camp.the top top half of the house is rented.there are 4 siblings on his will/trust.the income from the rent is almost non profit since one of the siblings lives downstairs and pays no rent.she is disabled on medicade.and has a special needs trust within the trust.i want to apply for Medicare, and was wondering if I have to declare the trust property as income,or assets?thanks a lot Marc P
This is in the state of Maine.
See my reply to your previous post.
I can’t begin to answer that on a blog post, sorry. And I see you’re in Maine. I suggest you get an attorney in Maine who has mastered the law in Maine. Here’s a good place to find one.
I want to set up an irrevocable medicaid trust. Some of the assets transferred to the trust will generate income. How do I make sure the income gets taxed to me? In other words, how do I know the trust I am creating will be classified as a grantor trust. I also have some pension income. Based on other comments you’ve made, I do not plan to transfer the pension to my irrevocable medicaid trust. However, I was thinking about creating a Miller Trust and transferring pension income to the Miller Trust as soon as I receive it. Will that income be treated as income for purposes of determining medicaid eligibility? Would it be a good idea to include a direction in the medicaid trust that the income received by the irrevocable medicaid trust be distributed upon receipt to the Miller trust? I live in Indiana.
I don’t know if you realize what a valuable service you are providing. I’ve talked to a couple of lawyers in my small community, and they don’t understand the nuances involved in establishing medicaid eligibility. I realize you can’t give specific legal advice, but your thoughts help many to at least head in the right direction. Thanks so much!
One way to insure Grantor Trust status is to retain an income right (income must be distributed to you). There are also other ways, such as retaining a “power of substitution.” It can get quite tricky.
I can’t comment on the effect of Miller Trusts in Indiana, because states have variations on how they’re treated, and I have no idea of Indiana law. Where exactly are you? Maybe I can point you to someone who can help.
Thanks. I understand that, if I create an irrevocable trust but retain the right to amend or withdraw funds, the trust will not protect my assets, and Medicaid will require that the assets in the trust be used to pay my nursing home expenses. Based on your response, I’m assuming it’s okay for me to retain the right to receive income from assets in the trust. Am I missing something?
No. Not missing anything. In the hands of an expert drafter, however, there are ways other people (family?) can get their hands on the funds if there is an emergency.
Hi, I have found your site very helpful.
My parents are considering an irrevocable Medicaid Trust and placing their residence as the only asset in the Trust. One of my siblings would be trustee and my siblings and I would be beneficiaries. I have read in other online sites that in such a trust the grantors (my parents) can retain a right to live in the residence during their lifetime and be responsible for real estate taxes, insurance, association fees, and maintenance and upkeep in lieu of rent. On the other hand, I’ve been told by others that the trust should not contain such a right and instead should give the trustee complete discretion to allow such use and occupancy, and to protect the trustee a provision should be included that waives the “prudent investor” rule when it comes to allowing “use and occupancy” by the grantors .
So my question is, generally, are there drawback for grantors retaining a lifetime use and occupancy in an irrevocable Medicaid Trust? If so, what are they? Is it better to give the trustee discretion on that issue – obviously the fear is the trustee goes rogue and throws the parents out. Thanks in advance
There have been some cases of Medicaid authorities attempting to count trusts when there are multiple factors at play, one of them being the grantors/settlors retaining a right to occupy the premises (on the theory that they could indefinitely block the trustee from selling). This isn’t always a problem and pops up only occasionally. What I have done is allow trustee and settlors to enter into an “Occupancy Agreement” (sort of like a lease) in which Settlor’s agree to pay all “carrying costs” (taxes, insurance, mortgage, maintenance) in exchange for occupying on a year-to-year basis. That also avoids the possibility of state Medicaid saying those payments amounted to gifts since the settlor doesn’t technically own the residence.
Make sure that the trust, while irrevocable, is a grantor trust for tax purposes (in the event the residence is sold you’ll want to take advantage of the capital gains tax break on sale of a residence — you can do that if the trust is a grantor trust). Make sure the trust will trigger stepped-up basis on death of parents so that children can minimize capital gains upon eventual sale.
These can be tricky. Make sure you have good counsel.
Thank you!
It sounds like giving the trustee discretion for grantor occupancy is the safest way to go.
As I understand it, a grantor trust for tax purposes would exist if the grantors retained the right to change the beneficiaries of the trust in a will, as long as the trust states that a beneficiary cannot be one of the grantors, or one of their creditors, or their estate or a creditor of their estate. Do I understand that correctly?
A grantor trust results when the grantor retains certain powers or rights over trust assets or gives them to another person classified as a “nonadverse party.” Testamentary special powers of appointment (the technical term for what you described for changes beneficiaries by a directive in a will) may or may not get you to grantor trust status. It depends upon other terms of the trust. There is actually a long list of rather subtle powers to use (or not use) depending upon whether or not you want to create a grantor trust. By the way, a retained “general” power of appointment (can appoint to anyone, including himself, creditors, or to estate) will certainly create a grantor trust . . . but if you’re interested in asset protection and avoiding Medicaid issues, the technical legal term for that is: “Dumb” I have given hours of CLE (continuing legal education) talks on grantor trusts. They can be tricky.
Sounds complex but worth the effort to do it right. I will contact an elder law attorney in my area. Thanks again!
My parents worked with an attorney 4 years ago to set up an irrevocable asset protection trust in Montana that included their house. I was looking for information about who should be paying the mortgage (my parents or the trust) and found an article stating that a house with a mortgage can’t be in an irrevocable trust. Do you know if that’s right? Thank you!
Great topic for a future newsletter. Thanks.
Most real estate loan agreements provide that the lender may accelerate the loan if the underlying property is transferred. Under the Garn-St. Germaine Act, however, a lender may not accelerate the note if the property is residential property and is transferred to under a number of various circumstances including a transfer into a trust in which the borrower remains a beneficiary and that does not relate to a transfer of rights of occupancy in the property.
I cannot give you a definite legal answer because I am not familiar with the particular facts of your case. But I routinely transfer mortgaged residential property to asset protection trusts. I usually send the lender notice with a friendly reminder of the law. I also notify any title insurance company. Best to play it above-board.
I am perplexed. I (because of medicaid look back rules) can not help my children and grand children financially, without risking not qualifying for medicaid if I ever need to. I do in the future have an inheritance coming. Is there a way that I can receive the inheritance into a trust to benefit my children and grand children only, without having to deal with the look-back period?
Is the person you expect to receive the inheritance from still alive? If so, can you ask them to change it from you to a trust. Unfortunately, if you receive the inheritance and transfer it to a trust for the children/grandchildren you are back to dealing with the Medicaid transfer rules (5 year look back).