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The Pros and Cons of New York Medicaid Trusts

A New York Medicaid Trust allows you to receive Medicaid as opposed to using your hard-earned money to pay for medical care, home health aides and nursing home.

What is a Medicaid Trust

When you make a New York Medicaid Trust, you leave property with a person you trust with instructions on what to do with the property. That person is called the trustee. Your trustee would usually be your close relative, such as a child, parent or sibling.

Your trustee has to follow the instructions you’ve written down in the trust agreement. The trustee also has to follow New York trustee law. The trustee cannot take property for themselves, although there can be another trustee to give property to that trustee.

Although your degree of control over trust property will be limited, you will still have a limited power of appointment to change who benefits from the principal of the trust, as long as the person benefitting from the principal is not you.

If your income is over the Medicaid threshold limit, you will need to make two trusts before they can qualify for Medicaid. In addition to the Income Only Trust, which will be used for the principal and probably be managed by your children if you are an older adult, you will also need to be a part of a pooled income trust for the income over the Medicaid threshold limit. Pooled trusts are managed by a non-profit organization.  A pooled trust non-profit usually takes about 8.5 % in fees for the income that goes into the trust.

The first trust we talked about is called a Medicaid Asset Protection Trust, and the second trust, the one that avoids Medicaid spend-down, is called a Pooled Trust, or Community Spend-down Trust.

IRA, 401(k) and other qualified retirement accounts are not required to be a part of the Medicaid trust, as they are not counted as assets by Medicaid. But any income and distributions from the retirement accounts will be counted towards the Medicaid threshold and will be considered in determining the Medicaid qualification.

A Medicaid Asset Protection Trust not only qualifies you for New York Medicaid but also has other benefits.

There are some downsides…

A Medicaid trust has the upside of qualifying for Medicaid, but you should also be aware that a Medicaid trust has some downsides:
  • You will lose a degree of control over your money
  • You will not be able to use the principal for your own benefit, you will only get the income
  • If your income is over the Medicaid income threshold, then you not only need a Medicaid Asset Protection Trust, but you will also need to be a part of a pooled trust, run by a non-profit, which will charge you 8.5% of any income it processes
  • If you’over 55, your estate may be subject to estate recovery upon your death under some circumstances
  • A Special Needs Trust made with the beneficiary’s own assets requires a  provision to pay back Medicaid upon the beneficiary’s death
A Medicaid Trust is right for you only if you want to get Medicaid and are willing to live with those trade-offs.

Restrictions on the Medicaid Trust

When you place your money into a Medicaid Trust, you give up a large degree of control over the money. You will not be able to use the principal. The trustee will only be allowed to give you the income. If the income is  above the Medicaid threshold, you will have to spend down the excess income on medical care or  have it have to go into a pooled trust managed by a nonprofit, which pays your bills for you and takes about 8.5% for their management fees.

If you need a nursing Home, there may be a delay in getting Medicaid

If you have no need for a nursing home, you can make a Medicaid Trust and qualify for Medicaid the following month, even if you need home care. If you do need a nursing home, then there will be about a month delay for each $11,500 you put in the trust.

This is an important distinction:

No nursing home = trust works to get Medicaid right away Example: You put $100,000 into a trust, you will qualify for regular Medicaid the following month.
Nursing home = trust starts working with a delay Example: You put $100,000 into a trust, you will only qualify you for Nursing Home Medicaid in about 9 months.

Five-Year Look-Back – The nursing home Medicaid look-back period is limited to five years. So you can make a trust now and start receiving regular Medicaid. It’s possible that by the time you need a nursing home you’d already be past the look-back period. Look at the following two examples to see how the five year look-back works:

Example 1: You put $1,000,000 into a trust, you don’t have to wait 100 months to qualify for nursing home Medicaid, only 5 years.
Example 2: You put money into a Medicaid Trust five years ago and are now applying for nursing home Medicaid. There’s no waiting period.

Alternatives to a Medicaid Trust

There are alternatives – As we said, the catch with this trust is that you don’t have access to principal and there’s a waiting period if you want Medicaid to pay for your nursing home. If the trade-off is too much for you, don’t despair. As you’ll see, there are other tools besides a Medicaid Trust.

Special Needs Trust – If you have a disability and are under the age of 65, you may qualify for a Special Needs Trust, which qualifies you for Medicaid and SSI without losing access to the principal of the trust.

Spousal Refusal – If one one spouse is sick, they can transfer all of their assets to the healthy spouse and have the healthy spouse sign a spousal refusal, which would qualify the sick spouse for Medicaid.

Other Tools – If you are “on nursing home steps”, look into forming a medicaid annuity or doing a gift and loan. There are also qualified transfers.

Using a New York Medicaid Trust as a Planning Tool

Avoid Future Nursing Home Costs – If you don’t need Nursing Home Medicaid right away and are willing to wait five years until you are able to get nursing home Medicaid, you can use a Medicaid Trust as a planning tool. As we get older, we begin to worry about the possibility that we may get sick and end up in a nursing a home. Paying for a nursing home can drastically reduce a person’s savings. In New York, the average cost of nursing home care is a little more than $75,000 per year, with the better nursing home care costing upwards of $170,000 a year.

Most Americans will drain out their savings while paying for nursing home care until they qualify for Medicaid. But with proper planning, this unfortunate result can easily be avoided and people can go to a nursing home and still leave some inheritance to their children.

If you no longer qualify for long-term care insurance, a Medicaid trust is a great way to secure your future eligibility for Medicaid. The key word here is “future,” because a Medicaid trust will not qualify you for Medicaid immediately – there will be a penalty period, which can be up to five years but is often less. If you have an immediate need for Medicaid, there is a number of other techniques we can use, such as a Gift and Loan or a spousal refusal.

As a part of creating a New York Medicaid trust, you will have to transfer your assets in the name of the trust, i.e. transfer your money and stocks to your trust’s account and re-title your property to the trust.

Peter creates a Medicaid Trust. For it to work, he has to transfer most of his money and stock to an account belonging to “Doe Trust 0945” and deed his house to “Doe Trust 0945”. This is the only way Medicaid will accept the premise that Peter no longer has the money.

Once assets are put into a New York Medicaid trust, you can lose Medicaid if you terminate the trust. This limit on revoking or amending the trust is part of what makes the trust qualify you for Medicaid. Because you no longer own the property, you prevent Medicaid from asserting you don’t meet the Medicaid resource limit. The trustee of your choosing will manage the trust. This is usually the person who is very close to you, such as a son or daughter, although some trusts are managed by an attorney or a bank. Some people opt to have more then one trustee, for example, two children and an attorney or a banker.

Planning in advance is the key – A proper Medicaid trust which is more then 5 years old will qualify you for Medicaid bar none, but a “younger” trust may incur a period of ineligibilty (the waiting period) for nursing home Medicaid, although you will qualify for regular Medicaid right away.

You can receive income from the trust, as long as the income is below the Medicaid eligibility limit. Medicaid will count the income, but “ignore” the principal of the trust. Any income over the Medicaid limit will have to be put back into the trust.

When Will I Begin to Qualify for Medicaid?

Delayed Effective Date – You will begin to qualify for regular Medicaid the month after you make the transfer of property into the trust. When the Medicaid Trust is more then five (5) years old, you will qualify for Medicaid without a waiting period. Otherwise, a period of ineligibility is calculated by taking the dollar value of the transfer divided by average monthly cost for nursing care, which equals the number of months you will be ineligible for Medicaid.

Example: Dad gives Son a gift of $100,000.00. Medicaid will consider the $100,000.00 figure and divide it by the average monthly cost of nursing care, let’s say, $10,000 which totals 10. Therefore, Dad will be ineligible for Medicaid for 10 months.

No Delay if there’s a “Qualifying Relative” – You may be able to have a Medicaid Trust without the imposition of a penalty period if you transfer your property to a qualifying relative: (1) your spouse, (2) your child who is under 21, blind or permanently disabled, (3) your sibling if he or she has an equity interest in the house being transferred and was living there for at least one year before you went into nursing care, or (4) an adult child who has lived in the home being transferred for at least 2 years preceding institutionalization and that child was taking care of you.

Speak to a Medicaid Lawyer – Speaking with an experienced Medicaid attorney will be useful to you because the attorney will advise you on the options available to you which will allow you to use Medicaid to cover the cost of medical care without depleting your assets. If you are looking to get nursing home Medicaid, planning in advance is a good option because the penalty period will likely expire before you have the need to become institutionalized.

Non-Medicaid Advantages of a New York Medicaid Trust

The main advantage of the New York Medicaid trust is that it allows you to receive Medicaid. This allows you to protect the family’s assets from being used to pay for your medical and nursing home care. But Medicaid Trust also includes the usual lifetime trust benefits:

  • keeps assets out of the probate court
  • maintains privacy
  • avoids the hassle of multi-state probate proceedings
  • avoids interruption of income and use of assets after your death
  • provides planning for mental disability
  • keeps money in the immediate family
  • keeps money out of children’s divorces
  • keeps money out of creditors’ reach

Here is more information about the benefits of trusts in general.

Although it’s probably not possible to even begin to plan a Medicaid trust without an attorney, we must still warn you that planing for Medicaid without an attorney may result in losing Medicaid and possibly even losing your money. The cost-benefit of doing a trust yourself just doesn’t work. If you’d like to find out more about New York Medicaid Trusts, give us a call at (212) 233-1233 or (718) 509-9774.