16 Jan Will a trust protect assets from a nursing home?

Q. I’m trying to navigate mom’s care and I get mixed messages about trusts. Does putting assets in a trust protect them from a long-term care facility taking them all? Also does that allow someone to become eligible for Medicaid?
— Loving child

A. We’re glad you’re asking these questions.

Planning for possible long-term care can be a challenge.

Trusts, which come in many different flavors, may be able to play a part.

But here, the details matter.

For example, revocable trusts permit the individual establishing the trust — known as the “grantor” — to terminate the trust and recover the trust assets at any time, said Donald A. Dennison, an attorney in the Elder Law department at Mandelbaum Barrett PC in Roseland.

He said because the assets in a revocable trust can be reached by the grantor, Medicaid will count the funds held in trust as an asset and therefore, should not be used for Medicaid planning purposes.

On the other hand, irrevocable asset protection trusts are useful tools to “shelter” assets in limited circumstances, he said.

“Unlike the revocable trust, irrevocable asset protection trusts remove assets out of a Medicaid applicant’s name, however, such a transfer will be viewed as a `gift’ and will result in a Medicaid transfer penalty if a Medicaid application is made within five years following the transfer of assets into trust,” he said.

Medicaid conducts a five-year lookback, or audit, of the applicant’s finances, looking for transfers of assets for less than fair market value — those gifts, he said.

Dennison said gifts made within the five years preceding the Medicaid application are added up, and divided by the Medicaid penalty divisor, which is currently approximately $11,500 per month.

This means for every $11,500 “gifted” during the five-year lookback, Medicaid will not pay for/cover one month of care, whether that be in a nursing home, assisted living, or at home using Medicaid’s Home and Community Based Services waiver program, he said

“Transfers of assets into trust are typically considered gifts, therefore, this type of planning is usually done well in advance of someone needing Medicaid services,” Dennison said.

Dennison noted that the grantor of an irrevocable asset protection trust cannot be the trustee, nor can they be named as a beneficiary.

“Therefore, this type of planning presents some risks, especially since the grantor is entirely divesting themselves of the funds placed in trust and entrusting a third party or multiple third parties to properly manage and invest these funds,” he said. “It is important that the grantor name a trustee who will not abscond with the funds or make unnecessary distributions to the beneficiaries.”

Dennison said irrevocable asset protection trust planning is only useful in situations where an individual is being proactive about asset protection, and there is no foreseeable need for a Medicaid application within the five-year period following the funding of the trust.

“The grantor will need to budget for out-of-pocket care costs during the five years following the initial trust funding,” he said. “After year five, the assets held in trust cannot be scrutinized by Medicaid, nor can they be reached by nursing homes or assisted living facilities.”

But what about individuals who need Medicaid services before five years?

There are other asset protection strategies, but you should sit down with a competent elder law attorney who specializes in crisis Medicaid planning.

Email your questions to .

This story was originally published in January 2024.

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.