When planning your estate, understanding how trusts impact Medicaid eligibility is essential. Trusts, whether revocable or irrevocable, can significantly influence your ability to qualify for Medicaid, a program that helps with healthcare costs for individuals with limited income and resources. Here’s a breakdown of how each type of trust can affect your eligibility.
What is a revocable trust?
A revocable trust is a trust that you, as the grantor, can modify or revoke at any time. You maintain control over the assets, meaning you can access, change, or even dissolve the trust whenever you choose. Since the assets are still considered yours for Medicaid purposes, a revocable trust does not protect you from Medicaid’s asset limits. If you place assets into a revocable trust, those assets are still counted as part of your resources when determining Medicaid eligibility.
How does an irrevocable trust affect Medicaid eligibility?
An irrevocable trust, on the other hand, is one where you give up control over the assets placed in the trust. Once you transfer assets into an irrevocable trust, you generally cannot modify or revoke it. This type of trust can protect assets from Medicaid’s asset limits, but only if the trust is properly structured. When you place assets in an irrevocable trust, they are typically not counted as part of your resources for Medicaid purposes, which can help you qualify for the program. However, Medicaid looks at any transfers made within a five-year “look-back” period, which could penalize you if assets were transferred too recently.
The five-year look-back period
Medicaid considers any transfer of assets to a trust during the five years before applying for benefits. If Medicaid determines that you transferred assets to an irrevocable trust to avoid eligibility rules, they may impose a penalty period, during which you will not be eligible for Medicaid coverage. It’s essential to understand this period and plan accordingly.
For those seeking Medicaid assistance, the type of trust you use can make a significant difference. If you’re thinking about using either a revocable or irrevocable trust, it’s crucial to understand how these tools will affect your Medicaid eligibility.
Transferring assets into a trust could be a strategic move for many, but it requires careful planning. You must take into account the potential impact on your Medicaid eligibility before making any decisions.