Transfers in Trust for Others under Medicaid

April 13, 2006

	Visited: 176
	Not rated
	Rate:

When individuals choose to transfer assets, as a pre-Medicaid planning tool, these transfers can be made outright to the recipient or in trust for the benefit of the recipient. However, the transferor would have to relinquish all rights in, and direct control over, trust assets, or the trust assets will be deemed owned by the transferor for Medicaid qualification purposes.

Perhaps the biggest disadvantage to a transfer in trust for the benefit of others is the extension of the "look-back" period from three to five years. Thus, such a transfer would have to be planned almost impossibly far in advance.

However, transfers in trust do have advantages. Transfers into a properly drafted irrevocable trust with an independent trustee, more than five years before application for Medicaid, would protect those assets by keeping them out of the reach of the applicant. Of course, to be effective, the transferor would have to relinquish all control, interest and incidents of ownership in the property.

With an irrevocable trust and an independent trustee, there is a loss of control over the assets, but to nowhere near the extent encountered with an outright transfer.

With an outright transfer, the recipient is free to do whatever he or she wants with the property. With a trust, the transferor can set out conditions and restrictions concerning the beneficiary's use of the property and the income it may generate, formally writing these into the trust document. Control over the ultimate disposition of the property also can be ensured through a trust.

The cost of a trust must be weighed against the benefits. An independent trustee (someone other than you or your spouse) would be required. If some other family member were unwilling or otherwise unable to serve as a trustee, the cost of a professional trustee would have to be taken into account. The trust would be an entity for tax purposes, meaning a tax return would have to be filed for it each year. However, with the cost of a nursing home around $70,000 per year, these costs may be very quickly recouped.