Which kind of trust is best for Medicaid planning?

Published By | Jan 17, 2022 | Trusts |

There are several kinds of trusts that you may have an opportunity to open while trying to plan for Medicaid in the future. You want to protect your assets, so it makes sense to opt for a trust that will allow you to keep your assets safe while still helping you qualify for Medicaid and its lower financial qualification limits.

Among all the trusts that there are, the type that is typically best for Medicaid planning is an irrevocable trust. An irrevocable trust cannot be amended or altered, which means that it is set in stone once you open it. When you place assets into this trust, they are taken out of your estate and will no longer be considered yours at all.

Why do you need to set up an irrevocable trust for Medicaid planning?

The Medicaid law says that any trust that allows you to receive back a portion of the principal of the trust will be a countable asset for the purpose of establishing Medicaid eligibility. Essentially, revocable trusts, which would allow you to cancel or alter them, will be counted as a part of your estate. This makes them more or less useless for the purpose of helping you qualify for Medicaid while protecting your assets.

Irrevocable trusts aren’t counted, because you can’t get the money or assets back out of those trusts once the trusts are established. It is possible, however, to use an irrevocable income-only trust, which would allow you to get at least some of your income back during your income. That income won’t necessarily be a countable asset, either.

Why is Medicaid planning important as you get older?

Medicaid planning is important because qualifying is difficult when you have a substantial number of assets. If you don’t qualify for Medicaid based on the value of your estate, then you will need to spend down your assets prior to qualifying. That means that you could spend your own money and need to sell your assets to pay for your nursing home care, for example, until your estate is worth little enough that you can qualify.

Avoiding this situation helps you protect more assets to pass on to your beneficiaries. An irrevocable trust may be the right choice for you, so you can know you’ll qualify for Medicaid without losing what you’ve worked for.