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Medicaid Asset Protection Trusts: How, When & Where They Can Be Used to Protect a Home

It’s natural for Medicaid Long Term Care applicants and recipients to wonder what will become of their home while they’re receiving care or after they have passed away. There are ways to keep the home from being counted as an asset during the application process, but this article will focus on protecting the home from Medicaid Estate Recovery Programs (MERPs) after the Medicaid recipient’s death so it can remain a viable residence or inheritance for the family.

Answering the question, should a trust be used to protect the home from Medicaid? It’s complicated. Important considerations are the value of the homeowner’s equity, their marital status, their health, their state of residence and how long in advance of the need for Medicaid would they be creating the trust.

How a Medicaid Asset Protection Trusts Can Protect the Home

A common way to protect the home is to set up an irrevocable Medicaid Asset Protection Trust and place the home in that trust. The Medicaid Long Term Care recipient creates the trust and is named the trustmaker (also known as the grantor or settler) and someone else, usually an adult child or other family member (but not a spouse), is named the trustee. A beneficiary, who will take control or “benefit” from the trust after the trustmaker is deceased, is also named. The beneficiary can be the trustee, but they cannot be the trustmaker or, in most states, their spouse.

When this is done, the home is no longer considered the property of the trustmaker/Medicaid recipient and it cannot be taken by the state through a MERP after the trustmaker’s death as reimbursement for care received. These trusts – which can also be known as Medicaid Panning Trusts, Medicaid Trusts, or Home Protection Trusts – come with strict rules. Most importantly, they must be irrevocable, meaning they cannot be changed or canceled, and the trustmaker must not have access to any asset placed in the trust.

The Omnibus Budget Reconciliation Act of 1993 made MERPs mandatory in all 50 states and the District of Columbia. When a Medicaid recipient age 55 or older passes away, the job of all these programs is to try and collect reimbursement for long-term care costs the state paid for that deceased Medicaid recipient. Many times the only asset remaining after death is the home.

Most states do have a time limit on estate recovery, usually one year after the death of the Medicaid recipient, but the MERP and Medicaid Asset Protection Trust laws do vary by state. In Wisconsin, for example, irrevocable trusts can actually be altered if the trustmaker, trustee and beneficiary are all in agreement. And the state of Michigan considers the home a countable asset even if it has been placed in an irrevocable trust. Since the rules are rigid and change depending on your state of residence, speaking with a Certified Medicaid Planner is recommended. To schedule a free consultation with a Certified Medicaid Planner, start here.

When to Create the Trust and Medicaid’s Lookback Period

When a Medicaid Asset Protection Trust is created is just as important as how it is created. These trusts violate Medicaid’s “look back” rules, which examine a Medicaid recipient’s recent financial past (60 months in most states, 30 months in California) when determining things like reimbursement for long-term care costs or exempt or countable status for assets. So, estate recover programs can force the sale of a home to collect reimbursement unless the Medicaid Asset Protection trust was created 60 months (30 months in California) prior to the day the trustmaker/home owner/Medicaid recipient began receiving long-term care.

Since this is the case, a Medicaid Asset Protection Trust is best suited for people in good health who likely won’t need Medicaid long-term care any time in the upcoming five years. However, there are situations and family scenarios where it can still be beneficial to put the home in a trust even during the 5-year lookback period. Again, consulting with a Medicaid planning professional may be helpful to your family’s specific situation. Schedule a free, initial consultation.

When the Home Is Protected Without a Trust

Irrevocable trusts are not the only way homes are protected from MERPs. If the Medicaid recipient’s spouse (also known as the community spouse), minor child or blind or disabled child (of any age) lives in the house it is protected from estate recovery. The state might try for reimbursement when the last minor child living in the home reaches adult age (21 in most states for these purposes), but that coming of age can occur outside the time frame allowed for estate recovery and often states do not seek this type of reimbursement no matter what the timeline.

Healthy adult children living in the home do not protect it from MERPs, unless the Child Caretaker Exemption applies. This occurs when an adult child has been living in the home and providing care for their parent for at least two years prior to that parent receiving Medicaid long-term care benefits and relocating to a nursing home. There is also the Sibling Exemption, which allows a sibling to take control of the home after the Medicaid beneficiary relocates to a nursing home or assisted living residence as long as the sibling has equity interest in the home.

A ladybird deed can also protect the home from estate recovery. The Medicaid recipient continues to own and control the home in this scenario, but the ladybird deed names a beneficiary who will immediately take control of the home following the Medicaid recipient’s death. These deeds do not violate Medicaid’s look back rules.

How Much Does a Medicaid Asset Protection Trust Cost?

The price to create a Medicaid Asset Protection Trust can range from $2,000 to $12,000. That may seem expensive, but it’s not as costly as losing a home to estate recovery, which is a possibility considering the national average for nursing home care is $7,750 per month.

Do I Need an Attorney to Create a Medicaid Asset Protection Trust Cost?

Yes, an attorney should be used to set up and manage this kind of trust because the penalties for mistakes are severe and the rules change from state to state. However, this doesn’t mean one needs to hire a lawyer directly. Some attorneys will only create a Medicaid Asset Protection Trust as part of a larger package of services that may not all be necessary. Certified Medicaid Planners will often partner with attorneys to ensure that all legal documents, like irrevocable trusts, are created and managed properly.

Other Types of Trusts

There are other trusts that have relevance when it comes to Medicaid. Two of the most common are Irrevocable Funeral Trusts, which protect up to $15,000 in assets for funeral and burial costs, and Miller Trusts, which protects income and is also known as a qualified income trust.

These trusts can help one meet the asset and income limits when trying to qualify for Medicaid, but they are only mentioned to eliminate any confusion between them and the irrevocable Medicaid Asset Protection Trust that can protect one’s home from estate recovery.