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Philadelphia PA Estate Planning Blog

Tuesday, August 7, 2018

Take A Second Look At Medicaid Trusts

If you’ve considered using a trust to preserve some assets while still qualifying for Medicaid—what we call a Medicaid Trust—but have written it off as too cumbersome or too restrictive, it may be time to take a second look. Why? Because there really is no better tool for “advanced planning” if you will need a nursing home in the future.
 
Medicaid Trusts aren’t for everyone, but a second look may allow us to see opportunities that maybe were not readily visible at first. Many clients shoot the idea down primarily because they don’t want to give up control of their assets.
 
But before you slam the door shut, think about your estate in a different way. Consider a particular asset (say, a second home, or stocks) that you may have already subconsciously earmarked for the kids. That may be a great asset to put into a Medicaid Trust.
 
Simply put, a Medicaid Trust is a trust that allows you to "wall off", or protect, certain assets from ever being spent on a nursing home. A lot of clients will ask, why not just gift the assets to my kids/family now? Why use a trust?
 
Putting assets in a Medicaid Trust is a far superior alternative to an early gift for several reasons:

  1. You retain some direction and control over the assets. With a gift, it’s gone forever.

  2. The asset is protected from your kids in case of their divorce, spendthrift habits, creditors, bankruptcy, lawsuits, etc. With a gift, it’s completely exposed and could be lost—especially if the child goes through a divorce, which is common. Even if you don’t think any of these apply to your family, you never know.

  3. An asset in this particular trust gets a step-up in basis upon your death. A gift does not. Highly appreciated assets will incur a capital gains tax if gifted.

  4. If for some reason you don’t make it through the “five-year lookback period”, you can rest assured you’ll be able to get that asset back if it is within a trust. With a gift, it’s potentially spent or gone from a divorce or creditor. If that happens, you’re left in limbo because Medicaid won’t cover you until you make up for the gifted asset. With the trust, you’ll know even in a worst-case scenario, that asset will be there if needed.

  5. Peace of mind, knowing the asset is safe from any unforeseen issues, and safe from the nursing home.

Whether a trust makes sense is something we have to review on a case-by-case basis. We have to look at your age, your assets, your health, your desires to plan, your family situation, and much more. Also, if you’re married, both spouses need to be in agreement about the planning.

But it never hurts to consider this type of trust. Sure, it’s more costly than a normal living trust—a Medicaid Trust is several thousand dollars to start. But think about it differently—you’re virtually guaranteeing that the asset (let’s say it’s a shore house worth $300,000) is protected from the nursing home. That’s $300,000 that your family will have no matter what happens. Is that worth a few thousand dollars, or what would be about 1 year of premiums for long-term care insurance?

If you’re not scared away yet, and you think you have assets that are worth protecting, let’s chat. We can setup a 30-minute complimentary consultation by phone or in person to discuss whether the Medicaid Trust will fit your estate planning goals.


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The Law Offices of Jeremy A. Wechsler assist clients with Estate Planning matters in Willow Grove, PA as well as Abington, Hatboro, Dresher, Horsham, Bryn Athyn, Huntingdon Valley, Fort Washington, Jenkintown, Glenside, Oreland, Warminister, Wyncote, Ambler, Elkins Park, Flourtown, Philadelphia, Warrington, Cheltenham, Gwynedd Valley, Jamison, Feasterville Trevose, Richboro, North Wales, Blue Bell, Lafayette Hill, King of Prussia, Collegeville, Oaks, Phoenixville, Oxford Valley, Langhorne, Penndel, Bristol, Fairless Hills, Bensalem, Plymouth Meeting, Furlong, Philadelphia County, Bucks County and Montgomery County.

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