Irrevocable Trust

Can a Revocable Land Trust Shield Assets from Medicaid?

Control of an asset is a key element, when Medicaid considers an individual’s eligibility.

Control of an asset is a key element, when Medicaid considers an individual’s eligibility.

31903821451_e117f0eddd_oA recent article from nj.com, “What revocable land trusts mean to Medicaid eligibility,” starts with what sounds almost like a warning: it’s not easy to protect or hide assets from Medicaid. A revocable land trust won't help to protect an asset from Medicaid's spend down requirements, because a trust that’s revocable can be revoked or terminated at any time by the grantor.

A land trust is a private agreement with the trustee agreeing to hold title to property for the benefit of the beneficiary or beneficiaries. The creator of the trust is called the settlor or trustor. This person is usually the titleholder to the property, before it’s transferred into the trust.

The settlor frequently remains the beneficiary of the trust for his lifetime. In effect, the trustee holds the title to the property and must follow the instructions of the beneficiary. The beneficiary typically has the absolute right to direct and control the trustee and receive all income from the trust. The trust agreement, at the creation of the trust, dictates the relationship between the trustee and beneficiary. As a result, the trustee often has no more power than the settlor gives him. In addition, he doesn’t have any other function, other than to do as the trust deed instructs.

Medicaid sees the assets in a revocable trust as countable because the Medicaid applicant who places the home in the trust she created has total control over the Trustee, and therefore, the assets in the trust.  It means that she can take back the asset at any point in time.

In such a case, Medicaid will deny the application. They’re effectively telling the applicant to sell the home, spend down the assets, and then reapply when they have no more than $2,000 in assets in the applicant's name and in the revocable trust combined.

Assets in an irrevocable trust may, however, be excluded from Medicaid spend down rules, based on the terms of the trust.  Though, even if a home was placed in an irrevocable trust that would exclude it from Medicaid, the transfer to the trust must be completed more than five years, before applying for Medicaid to avoid the five-year lookback and Medicaid penalty provisions.

An experienced estate planning attorney, with current knowledge of Medicaid regulations, will know what trusts or other strategies will work best to enable an individual to become eligible for Medicaid.

Reference: nj.com(April 9, 2018) “What revocable land trusts mean to Medicaid eligibility”

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