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What should you know about trusts in Medicaid planning?

On Behalf of | Apr 14, 2023 | Medicaid Planning

Trusts can be an effective tool in Medicaid planning because they can help individuals qualify for Medicaid while preserving their assets for their loved ones. Medicaid is a means-tested government program that provides health care coverage to low-income individuals, including elderly people who require long-term care.

To qualify for Medicaid, applicants must meet certain financial eligibility requirements, which include limits on income and assets. One effective asset preservation method used for Medicaid planning is trusts.

Irrevocable Trust

An irrevocable trust is a legal arrangement in which the creator transfers assets into the trust and relinquishes control over them. Once assets are in an irrevocable trust, they typically cannot be taken back or altered by the grantor. Since the assets are no longer under the creator’s control, they usually don’t count toward the individual’s Medicaid eligibility calculations.

Income-Only Trust

Also known as a Medicaid income trust or Miller trust, an income-only trust is a type of irrevocable trust designed specifically for Medicaid planning. It allows the grantor to transfer excess income into the trust, which can then be used to pay for the grantor’s medical and care expenses. This type of trust can help the grantor qualify for Medicaid while still using their income for their own benefit.

Special Needs Trust

A special needs trust is designed to provide financial support to a disabled beneficiary without jeopardizing their eligibility for government benefits, such as Medicaid or Supplemental Security Income. The trust can be used to pay for the beneficiary’s supplemental needs that are not covered by Medicaid, such as recreational activities, specialized equipment or additional caregiving services.

Pooled Trust

A pooled trust is a type of special needs trust that is managed by a non-profit organization. Multiple beneficiaries with disabilities pool their resources into a single trust, and the organization manages and distributes the funds according to each beneficiary’s needs. This type of trust can be an affordable option for individuals with limited assets who still want to protect their Medicaid eligibility.

It’s important to note that Medicaid planning and the use of trusts are complex legal matters that involve federal and state laws. Using a trust inappropriately could lead to penalties or disqualification from Medicaid benefits. Understanding exactly what you need to do to protect your assets is crucial, so seeking legal guidance is generally a good idea.