An understanding of the basic concept of crisis long-term care planning may help to understand the use of a Medicaid asset protection trust for advance planning. The reader should keep in mind that the Estate, Trust & Elder Law Firm is uniquely qualified to provide crisis Medicaid planning which is generally attainable even if your loved one is already in a nursing home. Our public seminars educate the public in how crisis planning is accomplished. It is further our opinion that Florida is one of the most advantageous states in which to pursue crisis Medicaid planning and if you have a loved one in a nursing home or whose admission to one is contemplated in the near future, you should see a qualified elder law attorney as soon as possible to pursue crisis planning strategies.
In both advanced and crisis planning our goals include: 1. Putting the patient in a position in which the family can help maintain the highest possible quality of life for the longest period of time. This is done in crisis planning through various strategies whereby disqualifying assets are converted to exempt assets or income streams in a way that they can still be accessed by the family to pay for benefits for the patient that public benefit sources (generally Medicaid and VA nonservice connected pension) will not pay for, but that such assets are no longer disqualifying. 2. The second goal of planning is maintaining the financial security of the caregiver spouse. If we spend all the couples’ money on the care of one spouse, what is the surviving spouse to do for sustenance for the rest of his or her life and, query, isn’t this goal also part of goal number one? That is, how can our patient have a high quality of life if he or she knows he is leaving his or her spouse destitute? 3. The third goal of planning is preservation of the inheritance. Our senior clients have worked their entire lives to accumulate their assets and during that accumulation they have also paid into the system for their entire lives. It is our opinion that they are entitled to anything that the system will provide through ethical and legal techniques to qualify for benefits so that the maximum amount of their accumulations can pass to their children instead of to a nursing home.
Keeping in mind that the firm is skilled in achieving those goals for crisis Medicaid planning, certain assets and income levels, and the possible unsuitability of some of the techniques we might want to use for crisis planning, indicates that if we have a client with a significant net worth and income who is not likely to require skilled nursing care within the next five years, then we should consider advance planning. If the condition of your loved one indicates a high probability of the need for skilled nursing care within the next year or two, then, depending upon the asset and income of the applicant(s), advance planning may not be appropriate. However, in a situation of considerable assets, let’s say more than $200,000 (liquid assets or even just a homestead), and a likelihood of not needing skilled nursing care in the next five years, we think advance planning through the use of a Medicaid/VA asset protection trust should seriously be considered.
In a nutshell, the way advance planning works is that the irrevocable trust instrument is created and, after the client(s) executes the trust, we would then assist in transferring substantially all of the assets to the trust. Typically, the senior would retain an operating account together with the minimal amount of assets to make the senior comfortable under the circumstances, including consideration of the senior(s)’ income, which would not and could not be transferred to the trust. For further discussion, let’s say for now that $25,000 or $50,000 is retained in the operating account outside of the trust.
The trustee is typically one or more of the senior(s)’ children. The trust would have lifetime beneficiaries, again usually one or more of the children, and ultimate beneficiaries, those to whom the assets remaining in the trust at the death of the survivor of the grantors would be distributed.
After establishing the trust, if the retained operating account was depleted to a point that the grantors were uncomfortable, the trustee could, but would not be required to, distribute some of the trust assets to one or more of the lifetime beneficiaries who would then deposit such distributions into his or her personal bank account. The child (lifetime beneficiary) could then gift necessary amounts back to the parents to restore the operating account, or purchase a new car, or pay for any other necessity for the parents, including cost of any care needed before the expiration of the five years. If these kinds of transfers are made too frequently, however, Medicaid may be able to establish that the intent of the whole transaction was to keep these assets as available resources, and, therefore, the desired strategy would not be achieved. Accordingly, it is important to analyze the totality of the senior generation’s assets and income and plan accordingly to try to minimize need for future access to the trust. Many times, these trusts work better where the senior is not spending all their income and future needs in excess of recurring income are more unlikely.
The long-term care planning strategy is that after the expiration of five years from funding, the assets in the trust would not be available resources for purposes of qualifying for Medicaid. If skilled care was necessary, after the expiration of five years, we would only have to deal with the assets outside the trust for crisis Medicaid planning at that time (the 25 or 50,000 retained operating account, for example, crisis Medicaid planning with respect to which is very achievable) and all of the assets in the trust would have escaped being consumed by long-term care expenses.
Some of the other advantages of pursuing advanced planning as soon as practical include the fact that the assets transferred to the trust would not be available resources for purposes of the VA nonservice connected pension benefit three years after funding (see our website, or the VA website, for further discussion of this benefit).
Also, the trust would be grandfathered in for purposes of the five year look back. In other words, we think it is inevitable that the Medicaid law will change in various ways in the future because of the increasing proportion of the federal budget that is consumed by Medicare and Medicaid expenses. It would certainly be easy for one of these changes to be the extension of the five year look back to ten years. Five years is doable; ten years not so much.
Another advantage is that we generally include a limited testamentary power of appointment in the trust document. This means that the senior(s) can execute a new will at any time after creation of the trust and exercise the power of appointment by changing the ultimate beneficiaries. Therefore, the designation of who is going to ultimately acquire these assets is retained by the seniors. The power of appointment also enables income tax basis step up at the time of the death of the power holder. And, of course, the assets in the trust avoid probate and may also be exempt from the claims of other kinds of creditors other than just long-term care creditors.
The trust can also be particularly effective with respect to the Homestead, and we generally transfer the homestead to the trust for our clients. The homestead is actually transferred to a residential sub trust with respect to which the senior(s) retain the right to reside in the Homestead sufficient to continue to qualify the homestead for real estate tax exemption as well as the IRS section 121 exclusion of gain on sale of a personal residence and, as aforesaid, if the homestead is not sold during the lifetime of the client, it will receive an income tax basis step up at death. The real benefit of transferring the homestead is realized in that situation where it is later determined to sell the Homestead. Had we not transferred it to the trust, all the proceeds of the sale would now be potentially available resources that would have to be dealt with prior to obtaining Medicaid or VA eligibility. Since we transferred it to the trust, the residential sub trust provides that upon sale the proceeds are automatically rolled over into the nonresidential portion of the trust and do not start a new look back. This can be extremely effective and advantageous to the clients.
If you have any other questions at all about the strategy, please contact the firm at 772-828-2588 or by email at firstname.lastname@example.org to request our confidential client intake form.