Before we get into the disadvantages of a Medicaid trust, we should provide the necessary background information. First of all, you may wonder why Medicaid should matter to you if you are going to qualify for Medicare as a senior citizen.
Long-Term Care Costs
Medicare provides government administered health insurance for those who qualify, but there are gaps. You must pay deductibles, co-payments, and premiums for Medicare coverage. Most people can absorb these costs, but there is one gap that is a completely different story. Medicare will not pay for long-term care expenses. If you require a stay in a nursing home or need the help of a home health aide for the activities of daily living, you must look elsewhere for assistance.
Medicaid is also a government health insurance program. It is available to people with financial need. Medicaid will pay for long-term care.
Because you have to demonstrate financial need to be able to qualify for Medicaid to pay for long-term care, Medicaid planning involves something called a Medicaid spend down. You position assets outside of your own name in anticipation of the need for Medicaid coverage in the future. It is important to consult with an elder law attorney before re-positioning your assets.
How do you divest yourself of personal control of assets? You could simply give assets to your family members who would otherwise be inheriting them someday. Direct gift giving is one option, but you can also create a certain type of trust for the benefit of your children.
There are revocable trusts, and irrevocable trusts. When you create a revocable trust, you can rescind or revoke the trust as you see fit. You can also change the terms. Because you retain this level of control, assets that have been conveyed into a revocable trust would be looked upon as your personal property when Medicaid is evaluating your financial capabilities.
With an irrevocable trust, you do in fact surrender incidents of ownership. Certain types of irrevocable trusts can be used as Medicaid planning devices. These would sometimes be referred to as Medicaid trusts.
While it is true that you can use a Medicaid trust to reduce your countable assets for Medicaid planning purposes, there are drawbacks. One of them is the simple fact that you are divesting yourself of control of these assets.
There is a five-year look-back period. You have to complete your divestitures at least five years prior to applying for Medicaid, so you must take action well in advance.
Since you have to act early on, you are taking a risk. You may never need long-term care, and you may never apply for Medicaid, but you have surrendered control of the assets that you conveyed into the Medicaid trust.
Depending on the type of Medicaid trust you use, there can be other disadvantages. If you would like to learn more, contact our firm to schedule a Medicaid planning consultation.