Most Trusts Not Medicaid Help

Dear Mr. Premack: My mother is in a nursing home. She owns her own home, has about $120,000 in the bank and has income around $900 each month. Someone suggested that if we put her home and money into a living trust, she will qualify for Medicaid. If so, her money would be protected and the government would pay for her care. Is there a kind of trust that can do this? — A.O.

Until the law changed four years ago, special trusts were an effective method to force the government to pay for long-term care under the Medicaid program. Using a trust, you could shelter your assets, keep the income, but claim poverty otherwise. When health care costs were incurred, Medicaid would step in to pay.

Called a “Medicaid qualifying trust,” this sheltering scheme was perfectly legal. Then Congress passed the Medicare Catastrophic Coverage Act, which made Medicaid qualifying trusts ineffective as a shelter. The new law was so strict that even Medicaid qualifying trusts made years earlier were retroactively invalidated.

Today, Texas Medicaid regulations say that any amount your mother puts into a Medicaid qualifying trust still counts as her resource. As a rule, if an applicant has more than $2000 in countable resources, Medicaid will not provide assistance. Also, any income distributable from a trust is counted against the applicant’s Medicaid income limit. If income is greater than $1,266 per month, Medicaid will not pay benefits, no matter how small the applicant’s resources are.

Current Medicaid law allows only one type of trust as an asset shelter. It must be built upon the following guidelines:

  • Your mother cannot be the trustee. Only an independent third party, over whom she holds no legal control, can be the trustee. The trustee controls the trust’s assets.
  • The trust must be irrevocable. Your mother cannot change her mind once she has set up the trust. She cannot regain control of the assets.
  • Only minor benefits can be payable to your mother. She cannot access either the principal, and income is restricted. Someone, like her children or grandchildren, must be the trust’s beneficiaries.
  • After establishing the trust, she will be disqualified from getting Medicaid for a time not exceeding 30 months. The period is calculated based on the cost of nursing home care and the amount transferred into the trust.

Irrevocable trusts provide the greatest benefit to people with large estates. Many people feel the benefits are outweighed by the restrictions. Your mother must decide if this method will be more helpful or hurtful in her situation.

Original Publication: San Antonio Express News, July 3, 1992