In MassHealth Planning, Some Trusts Can Put Elderly Persons in a Worse Position Than If They Had Taken No Action At All

If Assets Can Be Given Back to or Taken Back by the Original Owner, the Assets of the Trust Are Not Protected for MassHealth Purposes if a Nursing Home Stay Becomes Necessary.

In trust law, there is no such thing as “one-size-fits-all.” Trusts must be designed to meet the particular concerns of the person whose assets will be placed there. Two of the major non-tax concerns of many elderly persons in Massachusetts are probate avoidance and Medicaid (known in Massachusetts as MassHealth).

Revocable Trusts
Although the assets of just about any revocable trust will avoid probate, the assets of these trusts are never preserved for Medicaid purposes if a nursing home stay eventually becomes necessary and a Medicaid application is filed. All of the assets of a revocable trust are deemed countable, which in Medicaid jargon means the assets must be spent for the care of the nursing home resident.

The home of a Medicaid applicant is usually considered noncountable, but if it is in a revocable trust, in Massachusetts it is treated the same as any other asset. The home of a Medicaid applicant that is in a revocable trust must be sold and the proceeds spent on the care of the nursing home resident. Any exemptions that the home might have received, such as for the Medicaid applicant’s spouse and certain children or siblings, is lost by having the home in a revocable trust. This result is especially bad for the at-home spouse, who would have been allowed to keep the home if it had not been deeded into the revocable trust.  (Fortunately, Medicaid law allows the problem to be fixed by undoing the trust, but doing so can be difficult where the Medicaid applicant is a Trustee.)

Certain long-term care insurance policies can cause the home to be protected from placement of a lien upon a Medicaid application and from an estate recovery claim against the Medicaid recipient’s probate estate after death, but if the home is in a revocable trust the insurance likely does not afford any protection for the home.

The bottom line is that revocable “living” trusts are easy sales to be made to elderly persons by inept advisors, but do not meet the long-term care concerns of the elderly persons who cannot afford or qualify for long-term care insurance.

Irrevocable Trusts
Although the assets of just about any irrevocable trust will avoid probate, the assets of these trusts are often not preserved for Medicaid purposes in Massachusetts if a nursing home stay eventually becomes necessary and a Medicaid application is filed.

Since April 1, 1990, Massachusetts Medicaid law has provided that if a Trustee of an irrevocable trust can give assets back to the original owner, and if a Medicaid application is filed by or on behalf of the original owner, the assets of the trust are deemed available to the nursing home resident, and render the elderly person ineligible for Medicaid. This law applies retroactively to irrevocable trusts created before the Massachusetts regulation was adopted. The impact of this law on irrevocable trusts means that many irrevocable trusts do not meet the Medicaid concerns of the elderly persons who cannot afford or qualify for long-term care insurance.

The 2009 Doherty case had raised new problems with irrevocable trusts and has caused much greater scrutiny of irrevocable trusts upon a Medicaid application.  If too much control is kept when the trust is established, the trust may not be effective.