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Articles: Medicaid and Trusts Generally Don't Mix, by David A. Mack | State Budget Crisis Prompts Medicaid Reform | Elder Law Issues Expected to Grow |

Medicaid and Trusts Generally Don't Mix, by David A. Mack

I frequently encounter clients who believe that their assets are protected from the high cost of nursing home care if they are titled in the name of a trust. These clients are consistently surprised to learn that, in most cases, the trust provides no protection for their assets.

The most common form of trusts used by people is known as the "revocable living trust." The person creating the trust usually names himself as the Trustee (who is the person responsible for managing the trust assets). The trust permits the Trustee full discretion in managing and spending the trust assets. Hence, after the assets have been titled in the name of the trust, the creator of the trust continues to enjoy unfettered access to the trust assets and has no restrictions on use of the assets. This type of trust is useful if the person creating the trust wishes to avoid having his assets subject to probate after his death.

Unfortunately, this type of trust provides no protection to the assets from the cost of long term nursing home care. Since the trust can be terminated by its creator at any time and for any reason and since the creator still maintains full control of the trust assets, Medicaid will essentially disregard the trust and treat the trust property as assets of the creator. In many cases, this will result in the creator being ineligible for Medicaid benefits until the trust assets have been spent down.

For example, assume that a husband and wife create two separate revocable trusts; one in each of their names. Assume that the wife is in need of custodial care and the husband uses his wife's trust to pay for her in-home care. After her trust is spent, the wife enters a nursing home and applies for Medicaid. Since husband's trust is revocable and does not limit his ability to access the assets, Medicaid will disregard the trust and will consider HIS trust assets in determining whether his wife is eligible for Medicaid. Depending on the value of the assets, the husband may still have to spend down a portion of HIS trust assets in order to obtain Medicaid for his wife.

Consequently, it is not wise to rely on a revocable trust to protect assets from the cost of long term nursing home care.