Is an Irrevocable Trust Protected From a Nursing Home?

Before Medicaid will pay for a nursing home, the need for long-term care must be proven to be medically necessary. Each state has different criteria that determines what meets the “medically necessary” qualification, but most states require that you do not earn more than 300 percent of the Social Security Insurance income limit, which is currently $2,349 per month. 

If you have assets, those are considered part of your income, and Medicaid can require that your family use those assets before they will begin paying for long-term care. One way that people try to get around these rules is through irrevocable trusts.

What Is an Irrevocable Trust?

An irrevocable trust has terms that cannot be modified, amended or terminated without the permission of the beneficiaries of the trust. When you create an irrevocable trust, the trust becomes the legal owner and has all rights to any assets that are included. They may be created in two ways, either as a living trust or a testamentary trust. Examples of a living trust include a life insurance trust, spousal lifetime access trust or charitable remainder trust. 

Testamentary trusts are another form of irrevocable trust, which is also known as a will trust. With this kind of trust, a trustee will be named, and they will then be responsible for the distribution of assets. Testamentary trusts are created after the death of the person who created the trust and funded by the estate according to the terms of a will. It is possible for a will to have more than one testamentary trust. You should consult a will attorney for legal assistance regarding your trust.

Irrevocable Trust Design

When determining if assets are safe from Medicaid in an irrevocable trust, you must know whether the trustee is authorized to give any assets to the beneficiary. If the trustee is authorized to transfer resources to a beneficiary or spouse from the trust, Medicaid will count that portion as available to the individual. The reason for this is that Medicaid assumes that the trustee will exercise discretion and distribute the allowable assets if the person who created the trust must enter a long-term care facility. 

Any assets that the trustee is not permitted to distribute are protected from Medicaid. However, those assets may still disqualify you from Medicaid and that period begins when you apply for Medicaid, not when the transfer was made.

Trusts with Assets of More than One Person

According to lawyers like similar to the TRUST LAWYER Attorney TEXAS, there are irrevocable trusts that contain assets that may belong to you and someone else, such as you and your spouse. In that case, Medicaid will determine what percentage of the trust is yours and what percentage belongs to your spouse. If you are the one who needs nursing home care, your percentage will be considered an asset and Medicaid will impose a penalty period.

Special Irrevocable Trusts

There are exceptions to this rule, however, Federal law has created special trusts that may hold assets transferrable to the beneficiary without incurring a Medicaid penalty. The two types of special irrevocable trusts include first-party special needs trusts and pooled trusts.

First-party special needs irrevocable trusts are for those who may have special needs and are under the age of 65. Pooled trusts are controlled by a non-profit organization and designed to benefit a beneficiary of any age.

If your income is above the threshold for Medicaid and you want to protect assets from the nursing home, you need to talk to an estate attorney in San Jose CA today to learn what rights you have under the law. We have decades of experience helping people just like you protect their assets should they need long-term care at some point in their lives.