A recent article from nj.com, “What revocable land trusts mean to Medicaid eligibility,” starts with what sounds almost like a warning: it’s not easy to protect or hide assets from Medicaid. A revocable land trust won’t help to protect an asset from Medicaid’s spend down requirements, because a trust that’s revocable can be revoked or terminated at any time by the grantor.
A land trust, or sometimes referred to as a realty trust, is a private agreement with the trustee agreeing to hold title to property for the benefit of the beneficiary or beneficiaries. The creator of the trust is called the settlor or trustor. This person is usually the titleholder to the property, before it’s transferred into the trust.
The settlor frequently remains the beneficiary of the trust for their lifetime. In effect, the trustee holds the title to the property and must follow the instructions of the beneficiary. The beneficiary typically has the absolute right to direct and control the trustee and receive all income from the trust. The trust agreement, at the creation of the trust, dictates the relationship between the trustee and beneficiary. As a result, the trustee often has no more power than the settlor gives them. In addition, they do not have any other function other than to do as the trust deed instructs. This trust is deemed a revocable trust.
Medicaid sees the assets in a revocable trust as countable because the Medicaid applicant who places the home in the created trust has total control. It means that the applicant can take back the asset at any point in time.
In such a case, Medicaid will deny the application. They’re effectively telling the applicant to sell the home, spend down the assets, and then reapply when they have no more than $2,000 in assets in their name and in the revocable trust combined.
Assets in an irrevocable trust (or what our firm likes to call a “lockbox” trust) may be excluded from Medicaid spend down rules, based on the terms of the trust. However, even if the home was placed in an irrevocable trust that would exclude it from Medicaid, the transfer to the trust must be completed more than five years, before applying for Medicaid to avoid the five-year lookback and Medicaid penalty provisions.
An experienced elder law attorney, with current knowledge of Medicaid regulations, will know what trusts or other strategies will work best to enable an individual to become eligible for Medicaid.
For more information on this and other estate planning topics, visit our website and schedule your consultation today!
Reference: nj.com (April 9, 2018) “What revocable land trusts mean to Medicaid eligibility”