Offsetting the Cost of Nursing Home: Medicaid Trusts

Pereira Law, P.C. – November 2015

The cost of long-term care is constantly on the rise. With the average cost of nursing homes in Massachusetts now ranging from $12,000 to $14,000 per month, it is more important than ever to plan ahead by developing a strategy of protecting family assets from these high costs.

As many of our clients know, one proven method of long-term care planning is a Medicaid Asset Protection Trust. The assets are transferred by the client to the trust thereby removing the transferred asset from the client’s ownership. Terms of the Trust prohibit the client from accessing or controlling the trust principal, but maintain a client’s right to any interest/income earned. The trustee, who takes legal title to the assets for the benefit of the client and future beneficiaries, is controlled by the carefully crafted terms of the trust which establish obligations of the trustee so that the assets can be managed and eventually distributed in accordance with the client’s predetermined wishes. And while the client is prohibited from ownership of the assets, the client does have the right to remove and replace any trustee thereby ensuring the client’s desires with regard to the use and disposition of the assets.

In addition to potentially protecting a client’s assets from creditors and the cost of long-term care, the trust has other benefits. Since the trust is prepared prior to death, the assets of the trust pass directly to beneficiaries without the need for probate, thereby eliminating the cost and limited access to assets that probate brings. Also, since the assets do not pass to the beneficiaries until the client’s death, the beneficiaries receive the assets with a “step-up” in tax basis, typically freeing the beneficiaries of any capital gains tax. But for long-term care purposes, it is important to note that under Medicaid eligibility rules, any transfer of assets to such a trust must occur at least five (5) years prior to the client applying benefits, in order for the assets to be fully protected.

We encourage the use of such trusts because we have seen our clients derive considerable success from them. We are particularly happy to report that while MassHealth-Medicaid recently denied a client’s application for benefits based upon assets held in a Medicaid Asset Protection Trust, the decision was reversed after our successful appeal. But while the client saved thousands of dollars to pass to his children as beneficiaries of his estate, it became clear we were witnessing part of a tactical effort by MassHealth to target all asset protection trusts. For example, one such effort by MassHealth officials has been to isolate clauses of the trust that make assets subject to the control of the trustee. In these instances, if the client is also named as trustee, MassHealth has argued that the client technically has control of the assets. While we disagree, and current case law supports our belief, it appears that naming yourself as trustee over your own Medicaid Asset Protection Trust may complicate the approval process.

If you have a Medicaid trust of this nature and are concerned about a potential denial of benefits based on this or any other reason, we suggest you contact your attorney. If you do not have an attorney, wish to seek a second opinion, or are considering the creation of such a trust, schedule a free consultation with our office. We may be able to help you pinpoint clauses that are no longer acceptable or are potentially troublesome under the ever-changing MassHealth regulations.

As we constantly remind our clients, is important to continually review your plan to more efficiently combat both long-term care costs and potential creditors while securing a legacy for your beneficiaries. Keeping in mind the five-year transfer rule, the sooner you put into place an effective long-term care plan, which may include a Medicaid Asset Protection Trust, the better chance you have to protect and preserve your assets for the benefit of you, your spouse and your children.

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