Not a week goes by in which someone doesn’t call us about Medicaid eligibility as it relates to trusts. The question is usually some version of the following, “I transferred assets to an irrevocable trust. Can you confirm for me that those assets are protected and not countable by Medicaid?”
Trusts are very tricky when it comes to Medicaid. It’s one of the reasons I recommend that if the need for Medicaid benefits is at all a possibility, before setting up a trust or if one has already been established, you should sit down with an elder law attorney who has experience with Medicaid laws and regulations.
As readers of this blog know, Medicaid is a combination federal and state program. There is a body of federal laws and regulations that is common to all the states. Medicaid, however, is administered on the state level and so there are state laws and regulations that apply here as well. But they must be consistent with, and cannot violate, the federal laws and regulations.
One final general point here. We are talking about irrevocable trusts only. Revocable trusts – in which the grantor can revoke or amend the trust terms – are of no use with regard to asset protection for Medicaid purposes. Assets transferred to a revocable trust are treated as assets held by the Medicaid applicant and required to be spent down, no differently than assets held in the applicant’s name.
The last round of changes to the federal Medicaid laws occurred in 2005, known as the Deficit Reduction Act (DRA) of 2005. The DRA imposed a 5 year Medicaid lookback for transfers to trusts and individuals. Under what is known as the “any circumstances test” if there are any circumstances under which payment from the trust can be made to or for the benefit of the Medicaid applicant then that portion of the trust is countable as a resource under Medicaid rules and must be spent down.
The portion of the trust that can’t be paid to the Medicaid applicant is not counted as an asset. Provided those assets were transferred more than 5 years before the application is made would fall outside of the Medicaid lookback and would be protected. This is why when someone tells me they have an irrevocable trust, this isn’t enough for me to answer the question whether the assets are protected. We must examine the trust document itself.
So you can see that things are not as straightforward and clear as they would appear to be. Of course, nothing with Medicaid ever is and many states have tried to get around the trust rules or have in some cases chosen to flat out ignore them. Next week I’ll explain more.