As an older adult, you may start thinking about what will happen if you can no longer care for yourself. Becoming incompetent or incapacitated is not something anyone wants to happen, but it is a reality some of us face. Nearly 70% of individuals aged 65 and older now will need some type of long-term care. If you don’t prepare for that by protecting your assets now, it will be too late to save them later. Wise investors set up a Medicaid asset protection trust long before they need Medicaid to pay for long-term care costs.

What is a Medicaid Asset Protection Trust?

A Medicaid asset protection trust is a type of irrevocable trust. Irrevocable trusts are almost like a business that you set up. Once you transfer assets into a trust, they no longer belong to you. In an irrevocable trust, you no longer have control over what happens to your assets. However, the key is setting up the trust so that it meets your needs now and your family’s needs in the future.

As the grantor, you can fund a trust with assets including homes, cars, bank accounts, IRA accounts, etc. These assets now belong to a legal trust framework. When you create an irrevocable trust, you name a trustee. This trustee is responsible for taking care of the trust by distributing funds or assets according to the rules of the trust. You, the grantor, design the rules of the trust with your attorney before it is active. 

Meeting Medicaid Eligibility

If you are looking to give yourself a smaller income to meet income limits for Medicaid in the future, you can do this with an irrevocable trust. Medicaid has stringent eligibility requirements to qualify for benefits that cover your assisted living or nursing home expenses. If you’d like to be covered but not lose your assets to a Medicaid spend-down period, an irrevocable trust can help you achieve that. 

An irrevocable trust is not to be confused with a living trust (also called a revocable trust). With a revocable trust, you retain control over your assets. You can add or remove assets at any time. In a revocable or living trust, you still own the assets and can be ineligible for Medicaid based on asset limits.

Living Trusts ARE NOT Medicaid Asset Protection Trusts

Revocable, often called living trusts, are set up to benefit you during your lifetime and avoid probate after death, but they do not grant immunity from ownership. Your ownership status means that Medicaid still considers you as the owner of the assets. You will not qualify for coverage if you remain above asset limits outlined in North Carolina. However, after your death, a living trust generally becomes irrevocable.

On the other hand, setting up an irrevocable Medicaid asset protection trust protects you from creditors or nursing home costs while living. It gives the benefit of distributing income or assets to family members over time after you are gone.  It is often a tool to give distributed amounts of income over time to family members without fear of creditors or poor spending habits of your heirs. 

Leaving an Inheritance

If you have a home or savings that you hoped to leave to grandchildren, the long-term care costs can eat away at your heir’s inheritance. However, with a Medicaid Asset Protection Trust, you can mitigate your nursing home costs and still qualify for help from Medicaid for those expenses while receiving an allowance from your trust. 

Another layer of protection that comes with an irrevocable trust is that creditors can’t touch your assets. If you fear a grandchild has a substance abuse issue or a problem with running up credit cards, may get a divorce, or is in danger of bankruptcy, an irrevocable trust protects the assets in the trust from creditors or angry spouses. 

Medicaid 5 Year Lookback Period

It is so important to plan for the future because Medicaid has a 5-year look-back period. Setting up an irrevocable Medicaid asset protection trust before that 5-year look-back period enables you to disavow those assets. 

However, Medicaid will consider you ineligible if you set up a trust during the 5-year look-back period. Because you gave away or sold assets at less than market value, you face an ineligibility period.

We Can Help

If you want to protect your assets while qualifying for help from Medicaid if you need assisted living in the future, an irrevocable trust may be the best solution. As Hogan, Edwards, and Blue, we work with your desires and concerns to create the best plans for your future and that of your family and loved ones. We understand your desire to protect and benefit your family as you move into your twilight years. Contact us today and find out how we can help you make the best plans for your unique situation.