What is a Medicaid trust and why should I create one?

What is a Medicaid trust and why should I create oneIf you are wondering about Medicaid trusts, you most likely have a parent who is getting older and facing the possibility of an extended stay in a nursing home. If you have done your research, you have seen that this type of long-term care is not cheap. The average cost of a nursing home in Dayton, Ohio, can range anywhere from $5,000–$7,500 a month. That is an incredible amount of money that adds up fast and can quickly wipe out any savings your parents worked so hard for throughout their lifetime.

Medicare will only cover your parents, if you are lucky, for 100 days in a nursing home—they are most likely facing a longer stay than that.

In order to avoid nursing home costs, you need Medicaid. Contrary to popular belief, this joint federal and state program does not only apply to those in the lower-income bracket. It can serve as supplemental health care funding for those ages 65 and older. In fact, it has helped countless elderly people just like your parents to afford expensive health care services that would otherwise not be covered under Medicare.

But how do you get it? Medicaid has strict eligibility requirements, as it is income-based financial aid. Generally, only those in the lower-income bracket qualify. However, there are things that you can do to qualify for this great coverage.

Gift Your Assets to a Medicaid Trust—Not a Person

In order to qualify for Medicaid, there are limits on the assets you are allowed to have. This means that you will most likely have to transfer some of your assets in order to reduce the amount of property you have to your name. Perhaps the most commonly used and effective strategy is to make gifts.

It goes without saying that the person to whom you give your assets should be completely trustworthy. You want these assets to be retrievable when you want and need them most. You are, after all, not giving them away because you don’t need them anymore. You are giving them away to protect them from being unnecessarily depleted from the outrageous costs of basic human care.

However, when you gift something, it technically no longer belongs to you. This means that you have relinquished control over it, which works against the bigger purpose.

What is the better solution?

Make the gifts to the trustee of a Medicaid trust instead of directly to someone else, and here’s why.

The ownership rights of a trustee are different from the ownership rights of a person. Assets that belong to a trustee are not liable for that person’s debts, nor do they pass through his or her estate upon death. If this person were to get a divorce after you have made him or her the recipient of gifts through a Medicaid trust, the assets will not be available for payment to the ex-spouse. If the trustee has to unexpectedly file bankruptcy, the assets cannot be taken.

In other words, by making the gifts to a trustee of a trust instead of directly to someone, you minimize the risk of losing these assets unexpectedly. No matter how much you trust your designee, you can never predict the future.

There are many rules and regulations under which a Medicaid trust is governed, and it is easy to unknowingly violate its terms if you are not careful. They require careful management and paperwork and should never be attempted without the professional assistance of a Medicaid planning attorney. For help setting one up, call us today. Click here for more on the intricacies of these trusts.