For many people, the need for long-term care is a major source of anxiety when it comes to retirement planning. The costs of nursing homes and assisted living facilities can quickly deplete even a sizable life's savings. As a result, strategies to protect assets from these expenses are highly sought after.
One avenue some explore is the use of a revocable living trust to shield assets and potentially qualify for Medicaid coverage after a five-year look-back period.
Unfortunately, while a trust sounds like it provides asset protection, the reality is there are many different types of trusts, and a revocable trust or a living trust does absolutely nothing to protect someone's assets when determining whether or not they are eligible or ineligible for Medicaid.
A revocable living trust is a legal arrangement where you, as the grantor, transfer ownership of your assets to the trust itself.
This flexibility is a key advantage of revocable trusts, as it allows you to retain control over your property while potentially avoiding probate and other legal complications. But this flexibility and control is precisely why a revocable trust does not provide a Medicaid asset protection benefit.
Medicaid has strict income and asset limits that you must meet to qualify for benefits. These limits vary from state to state, but in general, you can't have more than a certain amount of countable assets.
However, Medicaid has a “five-year look-back” period when evaluating your assets. This means that the program will scrutinize any asset transfers or divestments you've made within the past five years leading up to your application.
Suppose they determine that you've given away or sold assets for less than the fair market value during that period. In that case, they may impose a penalty period during which you'll be ineligible for Medicaid coverage.
When it comes to qualifying for Medicaid, not all assets are created equal. The program distinguishes between countable and non-countable assets, and it's crucial to understand the difference.
Countable assets are those that Medicaid considers when determining your eligibility. These typically include:
Non-countable assets, on the other hand, are exempt from Medicaid's asset limits. These may include:
It's important to note that the way Medicaid classifies assets can vary from state to state, and the rules are constantly evolving. That's why it's crucial to work with knowledgeable professionals who can guide you through the nuances of qualifying for Medicaid in your specific state.
No, a revocable living trust is essentially, for all intents and purposes, a pass-through entity. Assets within a revocable trust are treated no differently than assets in your individual name. Generally, when you create a revocable living trust, or if your parents have created a revocable living trust, they can put property like a house and bank accounts in the trust. They are not only the creators of the trust, but they are in control of the trust because they're generally the trustees.
Even if they aren't the trustees, nearly all revocable trusts would provide that they are the trust's beneficiaries. That's what makes it a revocable living trust. It allows you to control your assets -for your benefit- while you're alive, and it does a very good job of allowing your heirs to avoid probate after you pass away. Or, if you become incompetent, it allows those you designate to still manage your life and assets on your behalf. But it's still on your behalf.
So, as a result, when we're talking about Medicaid planning, which involves (1) getting assets out of your name in a Medicaid-compliant way and (2) legally and ethically qualifying for help paying for home health care or nursing home care, sadly, a revocable trust doesn't do anything for us. It doesn't hurt or help.
For example, a home that's in a revocable trust is not protected from Medicaid because it's in a trust but because homesteads are protected anyway for Medicaid purposes. So, when a client comes to us and says, "Well, I only have a couple thousand dollars in my name, and everything else is in my revocable living trust," we have to be the bearer of bad news and explain, "Well, that's as if it were in your name anyway, and we still have to engage in alternative Medicaid planning strategies."
Depending on your circumstances and goals, there may be other strategies worth considering to avoid the 5-year lookback period.
Most of our clients come to us with too many assets, whether in their individual name or in the name of their revocable trust or revocable living trust, and we still have some advantageous tools that we can use to legally and ethically protect their assets. They don't have to wait five years.
In fact, within a matter of weeks or months, we can make them financially eligible for Medicaid again in a long-term care context to pay for nursing homes, an assisted living facility, or some home care as well.
If you or a loved one are concerned about protecting your assets and qualifying for Medicaid to cover long-term care costs, the experienced elder law attorneys at Elder Needs Law can guide you through the process.
Our team understands the nuances of Medicaid planning and can advise you on the most effective strategies, including the use of irrevocable trusts and other legal tools. Don't leave your financial future to chance. Contact Elder Needs Law today to schedule a consultation and learn how we can help safeguard your assets while ensuring access to the care you deserve.
Jason Neufeld is the Founder and Managing Partner of Elder Needs Law, a Florida estate planning and elder law firm he created in 2017. With more than 15 years of experience practicing law, he represents clients in a wide range of legal matters, including Medicaid planning, estate planning, elder law, probate, Medicare, and life insurance.
Jason received his Juris Doctor from the University of Miami — School of Law and is a member of the Florida Bar and the Broward County Bar Association. He has received numerous accolades for his work, including being named a Rising Star and Super Lawyer by Super Lawyers and among the Florida Legal Elite by Florida Trend in 2024.
