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Does a Family Trust Protect Assets from Medicaid?

Does a Family Trust Protect Assets from Medicaid

When a person decides to set up a family trust, it is meant to benefit his or her relatives. A family trust is meant to specifically benefit the person’s family, which may include blood relatives, relations by marriage, or by relations by law, in the case of adoption. A family trust can be a revocable or an irrevocable trust which is a subcategory of living trusts. 

Types of Family Trusts

While a family trust may be used to protect assets from Medicaid, this can only be done in the case of an irrevocable family trust. This type of trust cannot be changed unless the grantor and the beneficiary agree to the change. An irrevocable trust is used to avoid probate, and to avoid things like taxes, protecting assets from creditors, and to protect assets from public benefits, such as Medicaid. 

A revocable trust, on the other hand, may be changed by the grantor and can be considered by Medicaid when they look at eligibility, meaning they are of no use in protecting assets from benefits, such as Medicaid. 

While there are advantages to an irrevocable family trust, there are also drawbacks. Specifically, irrevocable trusts are extremely rigid in how they may be used. If for some reason, money was needed for an expense not outlined in the trust, the principal in it would not be able to be used. Because of this, it may make sense to leave ample funds outside of the trust, in the case of an emergency. 

It should be noted that if an irrevocable trust is funded within the five-year look-back period Medicaid examines, there may be a period of ineligibility, depending on how much money was put into the trust. 

The government looks for transactions made under market value, or assets given as gifts during this time. Depending on the penalty, it could take months or even years to get into a nursing home. Once the five-year period is up, these transactions are no longer viewed with a critical eye by the government. 

Establishing a Family Trust

Setting up a family trust is essentially a two-step process. First, you have to create and execute a trust agreement document. This document will list the beneficiaries, name a trustee, and provide instructions on how to manage the assets. 

The second step involves transferring assets into the trust. Deeds, titles, and other assets must be put into the trustee’s name, as put forth by the grantor. Without this step, a trust document is ineffective. 

To qualify for Medicaid, you must have $2,000 or less in assets, and receive no more than $2,500 in income every month. 

One of the risks of enacting an irrevocable trust is having the trustee spend down the account for their benefit. For this reason, especially in a family trust, it is important to choose someone you trust, who will carry out your wishes without taking advantage of the situation. 

After your death, an irrevocable family trust will also protect your assets from Medicaid Estate Recovery, which is essentially the government going after your assets to pay back what they paid for you. Since the assets are no longer in your name in an irrevocable trust, there is nothing for Medicaid to go after. 

Contact The Mattar Firm

Medicaid planning can be complicated and confusing. Deciding how to go about things, and how to manage your assets can take time and a great deal of thinking about what you’d like to see happen. It is vital to start the process early, to avoid things such as the Medicaid look-back period. Consulting with an experienced asset protection attorney at The Mattar Firm can help you make the right decisions for yourself and your family when the time comes. Contact us today at, 239-222-2222.

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