In Medicaid 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 Medicaid 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 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 Medicaid 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 raises new problems with irrevocable trusts and may cause 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.
Fixing Bad Trusts
In attempting to fix any Medicaid problem caused by a trust, a transfer of the assets usually causes a 5-year Medicaid lookback period unless the transfer of the assets goes back to the original owner.
It is fairly simple to fix the problem if a revocable trust is the cause of Medicaid ineligibility, since the original owner can revoke the trust and get the assets placed back into his/her name.
It is often difficult to fix the problem if an irrevocable trust is the cause of Medicaid ineligibility. The Medicaid problem caused by any irrevocable trust is completely dependent on the provisions of the trust, and the method of fixing the problem varies from trust to trust. Usually the elderly person is not the sole Trustee, and neither the Trustee nor the elderly person has the power to get the assets placed back into the elderly person’s name. In many cases, a Probate Court proceeding known as a trust reformation is needed, and in other cases, a Probate Court petition to terminate the trust due to frustration of purpose is the better procedural move.
Call the office of Brian E. Barreira at 508-747-8282 to schedule an appointment today. He has offices conveniently located in Plymouth and Hingham, Massachusetts, so he is always easy to reach.
