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Do Trusts Protect Against Nursing Home Costs?

Many of you may know that Medicare does not pay for long term care costs. It only pays for short term rehab. What about Medicaid aka MassHealth? That agency only pays for your care if you are single, have less than $2,000 and have not made substantial gifts during the preceding five years. If you are married, Medicaid allows the spouse in the home to retain a house and up to $126,000 in savings. Everything above that (including your condo on the Cape) is exposed to care costs.

If you don’t like the idea of transferring your assets to your children (bad marriage, poor financial management, potential estrangement, etc.) then can you transfer to a Trust? Yes, but a transfer to a probate avoiding Revocable Trust will not achieve the result. Medicaid would simply mandate that your revoke the trust if you ended up in a nursing home, re-acquire the asset individually in your name and spend it on care.

Does an Irrevocable Trust therefore protect the asset from Medicaid? It depends. This area of Medicaid and elder law has been the most hotly contested/litigated topic for the last 8 or 10 years. Medicaid does not like the fact that elders have transferred to their child as Trustee where the elder only receives income and supposedly has no access to the principal. Medicaid has done gymnastic contortions to convince the courts that certain language of trusts that applicants have used (there is no uniform Massachusetts trust form) allow the elder to conceivably access the bulk of the money (principal) in the trust and therefore must use it for his or her care.

There have been multiple litigated cases that have been appealed to our highest court, the Massachusetts Supreme Judicial Court. The rulings have been scattershot in supporting such trusts as protective strategies but have also gone against applicants. Elder law attorneys now know there is certain language that is taboo in an Irrevocable Trust if you want to pass muster with Medicaid. But even a well-crafted Irrevocable Trust may run into problems. My primary complaint is that the client/applicant only learns of Masshealth’s quarrel with the plan at the time of application. If the Trust is deemed deficient and therefore accessible, it is too late to change the plan! The elder is already in the nursing home. Medicaid, unlike the IRS, does not provide advance advisory opinions about whether a legal/financial strategy is ok under the regulations.

I recently attended an elder law seminar on Irrevocable Trusts hosted by an expert in litigation against Medicaid. Her point was this: Irrevocable Trusts can protect assets in the event of nursing home placement…..but don’t be surprised when Medicaid denies the case and you have to go through the appellate process. Do you want that potential agony or do you choose to simply transfer to one or more children while retaining a life estate? Your call.

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