Transitioning into Medicaid is like learning a new language—eligibility rules, asset limits, look-back periods…oh, my. But if you’re helping a loved one through the process, trusts and Medicaid is one phrase to know, for sure.
Yep, those trusty legal documents aren’t just for estate planning or avoiding probate—they can also play a major role in Medicaid planning. Let’s break down the connection between trusts and Medicaid in plain English.
Medicaid is a government program that helps cover healthcare costs, especially long-term care, for people with limited income and assets. The catch? To qualify, someone usually has to reduce their assets to a very low level. For many people, that means making tough choices—like selling the family home or draining savings. But that’s where trusts can help. Used properly, a trust can protect certain assets from being counted against Medicaid limits.
Revocable and Irrevocable Trusts and Medicaid
There are two main types of trusts: revocable and irrevocable. Both can work with Medicaid, depending on how they’re set up. (And as long as the trust is set up far enough in advance—more on that later).
A revocable trust is flexible. The person who sets it up can change it, move assets in and out, and call the shots. Sounds good, but there’s a catch. If the potential Medicaid recipient is the one who set it up and, therefore, still controls the assets, Medicaid may count them as theirs. Which means that for someone to qualify for Medicaid benefits, their assets have to go into a revocable trust set up by someone else (like a trusted loved one).
An irrevocable trust, on the other hand, is a different story. Irrevocable means inflexible, essentially. Once an irrevocable trust is set up, it can’t change. No one can alter the terms or update the assets. That’s the downside of an irrevocable trust. The upside is that assets in an irrevocable trust may not count against Medicaid eligibility.
Timing Is Everything
(From before.) Medicaid has a five-year look-back period. That means if someone’s assets go into a trust within five years of applying, they may not be eligible for Medicaid. When considering a trust for Medicaid planning, the sooner, the better. Like, way better. This isn’t a last-minute move—it’s a long-term strategy.
What Can Go Into a Trust?
Loads of things. People often place things like:
- The family home
- Savings or investment accounts
- Life insurance policies with cash value
- Digital assets
- Sentimental items
- Other non-financial assets
The Bonus: Protecting a Legacy
Here’s the other big reason to consider a trust in Medicaid planning: asset protection. Without a trust, the state can try to recover Medicaid costs from an estate. But assets placed in a trust may be shielded from this recovery—meaning they can actually go to heirs, not the government.
Trusts and Medicaid Go Hand in Hand
A trust can help someone qualify for Medicaid when the time comes while also preserving assets and easing the burden on loved ones. It’s a powerful planning tool when used correctly. If a long-term illness hits and Medicaid is on the horizon, now’s the time to explore options.