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Medicaid Planning: Proactive Strategies for Protecting Assets from Long Term Care Costs

We have many clients who want to protect some of their assets in the event they require long term care in the future. Some want to ensure that a particular asset, such as the family beach house, or family farm, remains available for future use and enjoyment of the next generation. Others understand that the value of their residence would provide a significant financial nest egg in the future. Those same clients have heard that Medicaid can help with the cost of long term care, but also know that the program has strict financial limitations. We help clients discover ways to proactively protect assets in case they require long term care in the future.

Medicaid Planning Using an Irrevocable Trust

A proactive planning strategy is to utilize an Irrevocable Asset Protection Trust. The essence of the Trust is straightforward: the Trust maker takes a significant asset (or assets), like their home, and transfers it to an Irrevocable Asset Protection Trust, managed by a Trustee of their choosing. The terms of the trust cause the assets to be excluded for Medicaid purposes, allowing the asset to be protected for long term care purposes.

A carefully drafted Trust provides safeguards to keep the Trust maker’s living situation unchanged and protect some of their ownership rights in residential real estate placed in the Trust. Properly drafted trusts will preserve the personal residence capital gains exemption under “grantor trust” tax rules. The Trust should also ensure that the Trust maker has the power to designate lifetime beneficiaries to whom assets can be distributed during their lifetime while preserving eligibility for both the tax basis and Medicaid. Irrevocable Trusts allow the Trust maker to include provisions to promote flexibility and can prove a better arrangement for protecting a residence than gifting the residence or retaining a life estate deed. Carefully drafted Irrevocable Trusts will allow the Trust to sell a residence and purchase a replacement property and/or invest the proceeds. Irrevocable Trusts should also be drafted to allow jurisdiction of the Trust to be changed in case the Trust maker moves to a different state in the future.

The retitling of assets and the timing of which this is completed is of the upmost importance as the goal is for Medicaid to view the owner of the property as the Trust, not the Trust maker. Proactive planning allows clients to “reduce” their assets under Medicaid rules to qualify for assistance, if necessary, in the future. Transfers to Irrevocable Trusts are subject to Medicaid’s 5-year lookback rule, which is why they are typically used as a proactive planning tool. Assets need to be transferred to the Trust 5 years prior to an application for benefits for them to be fully protected. While we cannot predict the future, Irrevocable Trusts provide peace of mind and proactive planning for one of life’s greatest unknowns.

As important as proactivity, it is essential that Irrevocable Trusts be drafted by an Elder law attorney who focuses their practice on Medicaid planning and applications. Attorneys who help clients apply for benefits are best equipped to draft the Trust, as they understand how administration of the trust when care is needed plays out during the application process. DiPietro Law, LLC is a boutique law firm with a practice devoted to Estate Planning and Elder Law, allowing us to help secure our client’s future through proper and holistic planning.