Understanding Medicaid asset protection trusts

On Behalf of | Aug 9, 2023 | Estate Planning |

California residents have a unique opportunity to establish a Medicaid trust with a 30-month look-back period. Most other states require a five-year look-back period. Establishing a trust is the first step that many residents take to ensure that long-term care later in life is accessible and affordable. However, these trusts aren’t for everyone. It’s important to fully understand your decision before moving forward since these trusts are irrevocable.

Planning for long-term care

Long-term care is a costly reality for many older Americans. Medicaid is one way to cover the costs, but it is only accessible to qualifying adults. To qualify for long-term care coverage from Medicaid, a single individual must have $2,000 or less in assets. To qualify for Medicaid itself, a single individual over 65 years old must have an income per month of less than $2,523.

Today, many individuals find themselves unable to pay for long-term care on their own, but they don’t qualify for Medicaid. Putting assets into a trust can reduce your available assets and help you meet the requirements to qualify. Because of this, many individuals choose to set up a Medicaid trust as part of their long-term estate planning. While this seems simple enough, it’s important to understand the pros and cons.

The advantages and disadvantages

Once your assets are in the trust, you don’t own them anymore. The trust owns them. This allows you to qualify for Medicaid as long as your assets have been in the trust for at least 30 months, or two and a half years. This is a major advantage.

Another advantage is that the trust protects your assets from creditors. When you pass away, the assets will go to your beneficiaries. The state will not be able to reclaim the assets in order to recover costs for your long-term care. Additionally, your assets won’t need to go through probate.

A major disadvantage to setting up a Medicaid trust is that it is irrevocable. If you need those assets in the future, you won’t have access to them. If you need that income for long-term care before the 30-month look-back period is up, you will not have access to the assets.

For this reason, setting up a Medicaid trust is something to consider carefully. Before making a final decision, you can consult financial planners or other professionals. Consider whether long-term care insurance is an option for you. This is an alternative way to cover the costs without placing your assets in a trust.