The Ins and Outs of the Popular Medicaid Trust: The Purpose of the Trust

By Sal Di Costanzo

It is irrefutable that there is a possibility that you may require nursing home care someday.

The next logical question would be how are you prepared to pay for that care?

There are only four options to pay for your care at a nursing home: private payment, long-term care insurance, Medicare and Medicaid.

For many, paying privately is prohibitive, as the average monthly cost of a nursing home exceeds $15,000 a month. Long-term care insurance is often not an option because many people cannot afford the premiums or cannot qualify due to age or health. Medicare only pays, at a maximum, for the first 100 days in a nursing home.

That leaves Medicaid as your only viable alternative.

For Medicaid eligibility purposes, your house is an exempt resource. However, Medicaid can still place a lien on your house. Those who intend on relying on Medicaid to pay for their long-term care are forced to contemplate these issues, and in doing so, are regularly introduced to the Medicaid Trust as a mechanism to obtain Medicaid eligibility without losing their assets.

Mechanics of the Trust

You are the creator of the trust. Usually, one or more of the children are the trustees. The children are usually the beneficiaries of the trust after your death; however, you can name anyone as the beneficiary.

The trust is irrevocable. However, there are provisions under New York State law that allow for the revocation or amendment of an irrevocable trust. Our trusts are drafted in such a manner to allow for changed circumstances.

You are entitled to receive the income of the trust, if any. This means that you are entitled to receive the interest and dividends, etc., generated from any trust assets. You are not entitled to take the principal from the trust.

After five years from the date the assets are transferred to the trust, the assets of the trust can no longer be considered by Medicaid when determining eligibility.

Provisions Pertaining to the House

The Medicaid Trust is largely drafted with the intent to transfer your house and/or other assets to the trust. The trust provides that you have the right to live in the property of the trust.

You are still considered the owner of the house for purposes of maintaining the house, payment of real estate taxes, the STAR exemption, the veteran’s exemption and any other tax benefits attached to the house.

The house can be sold at any time. A new house can be purchased with the proceeds of the sale from the first house.

Special Powers

Many clients are concerned about losing control. However, a properly prepared trust affords the creator a great deal of flexibility. For instance, in my trusts, I give the client the power to change the trustees. Consider for a moment a child named as a trustee that becomes a hooligan. You can remove and replace the trustee with someone else.

Another scenario where this power is viable might be where you want to sell the house, but the trustee will not sign the contract. All you need to do is remove and replace the trustee.

You also have the power to change the beneficiaries of the trust. Assume for a moment that your three children are the beneficiaries of the trust and one child gets divorced. You can change the beneficiaries to your remaining children to avoid having your assets become subjected to the divorce proceeding.

The Medicaid Trust is one of the most powerful tools in our arsenal. Please contact us to more fully discuss this planning technique as it is one of the few techniques that can be implemented before you require long-term care.

I can be reached at 914-245-2440 or by e-mail at smd@mfd-law.com. Our website is www.plantodayfortomorrow.com.

Salvatore M. Di Costanzo is a partner with the firm of Maker, Fragale & Di Costanzo, LLP. He is an attorney and accountant whose main area of practice is elder law and estate planning.