What happens to Medicaid if we put our assets in a trust?

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Q. My husband and I are retired and of reasonably good health, but we are getting older. We’ve been thinking about our finances and the future and wondering if we should put our funds and real estate in a trust. We also would like to know what kind of trust can ensure eligibility for Medicaid benefits?
— Senior

A. We’re glad to see you’re trying to plan ahead.

Here’s what you need to consider.

A married individual applying for an institutional level of Medicaid may have no more than $2,000 in countable assets.

“The assets of the couple are pooled together to calculate what portion of the assets the Medicaid applicant’s spouse may retain — known as the ‘community spouse resource allowance’ or CSRA,” said Shirley Whitenack, an estate planning attorney with Schenck, Price, Smith & King in Florham Park.

She said the value of the principal place of residence and one vehicle are not countable assets.

The remaining assets of the couple must be spent down or transferred if there are sufficient assets to pay for the individual’s care during the five-year “look-back” period for Medicaid, she said.

There is a penalty period of Medicaid ineligibility imposed for asset transfers based on the value of the transfer if the transfer was made during the look-back period, she said.

“When assets are transferred to a revocable trust, Medicaid treats the assets in the trust as though they still belong to the individual who transferred the assets,” Whitenack said. “If the trust is irrevocable, and the individual establishing the trust — the grantor — can benefit from the trust assets, Medicaid considers those assets to be available and there is no transfer of those assets.”

Whitenack said if the grantor can no longer benefit from the trust assets, then there has been a transfer subject to the five year look-back period.

“If the grantor retains an interest in an irrevocable trust, for example, the right to be paid income from the trust, then the assets in the trust will be subject to estate recovery by Medicaid,” she said.

What does this all mean? You and your husband should consult with an elder law attorney to determine whether to establish and fund a trust for purposes of qualifying for Medicaid.

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This story was originally published on Feb. 13, 2020.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.