In the process of estate planning, you may want to ensure that your spouse, children, or other beneficiaries receive what you intend them to have. Unfortunately, if your medical needs require you to enter a long-term medical facility, anything over $2,000 will be subject to use in paying for your care.
After everything has been liquidated, and you have less than $2,000 in “countable assets,” Medicaid will pay for your care. However, after your death, Medicaid will continue to look for assets that can be sold to pay for your long-term care.
Five-Year Lookback Period
Medicaid requires that all other potential sources of payment be exhausted before an individual can qualify, meaning that you are “impoverished” with less than $2,000 in assets and earn or have less than $2,205 per month in income.
Medicaid examines any transfers of assets you may make to individuals during a five-year period prior to your application. This includes property sold for less than fair market value.
The five-year ineligibility period begins when you apply for Medicaid, not on the date of the transfer. So if you transferred ownership of your house to a beneficiary less than five years before your application, your “lookback period” for eligibility will begin on the date of the application, meaning an additional five years of ineligibility.
This means that if you’re considering giving your home to your children or other beneficiaries and continue living in it until the time comes to move out of it, you would have to do so more than five years before your application for Medicaid or face steep transfer penalties.
Living Trusts Won’t Protect Your Assets
Unfortunately, living trusts won’t help. Anything in a revocable trust will be treated as if you still own it. You still have control of the asset as if you still own it, or you can revoke it and retain ownership.
An irrevocable trust should also be done outside the five-year lookback period that Medicaid requires, which will also depend on the amount transferred into the trust. You’ll also lose control of those assets and have no legal recourse if the trustee does not follow the set plan or decides to spend down the assets for themselves.
Under certain circumstances, even if some of your property is in an irrevocable trust, the state can still go after your assets, such as your house, even if they were originally an “uncountable asset,” and not part of your estate.
Special Needs or Supplemental Needs Trusts
Rather than taking chances with a standard living trust, this type of irrevocable trust is designed to hold assets that can be used for someone who is in a nursing or long-term care facility. It also prevents the individual from having too many assets to qualify for Medicaid. The funds can be used to provide amenities to a disabled individual. The transfer penalties only apply to nursing and assisted living facilities, not Medicaid in-home care.
There are two forms of special needs trusts.
- First-party trusts—these trusts are made up of the beneficiary’s assets. It’s also called a self-settled trust or a d4a trust (named after 42 USC 1396p(d)(4)(a), the law that created it), and is used by individuals already receiving Medicaid to manage monies from a court settlement, inheritance or other financial windfall. The criteria for qualifying are:
- Be under the age of 65 and disabled
- The trust must be established by a court, a guardian, a parent or grandparent
- The state paying the benefits must be named as the trust’s primary beneficiary
- Assets are only to be used for the benefit of the person receiving Medicaid
- Pooled trusts—this type of trust is managed by a nonprofit organization, and “pools together” the resources of multiple Medicaid beneficiaries of any age, including those over 65. Disabled individuals who are legally competent can create the pooled trust. The beneficiary, together with a parent, grandparent, guardian or with the court, can establish a sub-account in the pooled trust. When the Medicaid beneficiary dies, the state will be reimbursed for its expenses from the pooled trust for expenses paid on behalf of the beneficiary. Remaining funds are divided between the nonprofit and those designated by the Medicaid beneficiary.
Chicago IL Living Trust And Estate Planning Attorney
Medicaid planning is just one part of estate planning that you can benefit from. However, it is a very complex and complicated area of law, and requires careful attention to detail.
James C. Provenza is an estate planning attorney in Illinois with years of experience helping clients take care of their affairs, and to make sure their wishes are carried out. Call our firm today at (847) 729-3939, or use our online contact form.
