Medicaid Qualifying Trust – How Does it Work

A Medicaid Qualifying Trust in NY allows you to qualify for Medicaid. You can have the government pay for medical care, home health aides, and nursing home. A Medicaid Qualifying Trust is a valuable tool that helps protect your assets, allowing you to leave your estate to your family.

What is a Medicaid Qualifying Trust in NY

When you make a Medicaid Qualifying Trust in NY, you leave your property with a person you trust, with legally binding instructions on how to manage the property. That person is called the trustee. Your trustee would usually be your close relative. People typically their child, niece or nephew or sibling.

You cannot be a trustee of your own Medicaid Qualifying Trust. Your spouse also cannot be a trustee of your Medicaid Qualifying Trust.

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

Your degree of control over trust property will be limited – for example, you will not be able to dictate how the trustee will manage your property. However, you will still have some control over the assets. For example, you will be able to make non-binding suggestions to the trustee as to how to manage your property. And you will be able to change who benefits from your trust by using a power of appointment. As long as you are not the one benefitting from the trust, you can change the beneficiaries of your trust as much as you like.

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 will 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 from 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 Qualifying Trust, as the Medicaid administration does not consider them to be assets. But the Medicaid administration will count any income and distributions from the retirement accounts towards the Medicaid income threshold.

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

The Elements of a Medicaid Qualifying Trust

A valid Medicaid Qualifying Trust has

a trust document, which sets forth the terms of the trust
a grantor, who gives property to the trust
a settlor, who sets up the trust
a trustee, who manages the trust
beneficiaries, who benefits from the trust
property that’s transferred to the trust

A trust can have one or multiple trustees, grantors, settlors and beneficiaries. When you set up a Medicaid Qualifying Trust, you are a settlor because you set it up, a grantor because you transfer property to the trust, and a beneficiary of the income of the trust.

The Downsides to a Medicaid Qualifying Trust

A Medicaid Qualifying Trust has some downsides.

You will lose a degree of control over your assets
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 are over the age of 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 Qualifying Trust is right for you only if you want to get Medicaid and are willing to live with those trade-offs.

SSI, Section 8 and Food Stamp Benefits

When you set up Medicaid Qualifying Trust in NY, this same trust can also help you qualify for SSI (Supplemental Security Income), SNAP (Food Stamps) and Section 8 (Housing Choice Voucher Program) benefits. Because each one of those programs has different requirements, it is important to consider not only Medicaid but also those programs when setting up your trust. The trust that is right for you may be an “SSI, Section 8, SNAP and Medicaid Qualifying Trust.”

Restrictions on the Medicaid Qualifying Trust

Whatever money and property you place into a Medicaid Qualifying Trust, you give up a significant degree of control over those assets. 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.

	There may be a delay before you can use your Medicaid Qualifying Trust to qualify for nursing home Medicaid

There are three kinds of Medicaid: “Regular,” “Home Care,” and “Nursing Home.” You can be eligible for “Regular” and “Home Care” right after creating a trust. But there is a five-year look-back period for qualifying for “Nursing Home” Medicaid. If you try to get “Nursing Home” Medicaid before the five-year waiting period is up, there will be a one month disqualification period 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 Qualifying Trust five years ago and are now applying for nursing home Medicaid. There’s no waiting period.

Alternatives to a Medicaid Qualifying Trust

There are alternatives – As we said, the catch with this trust is that you don’t have access to the 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 Qualifying 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 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 Medicaid Qualifying Trust as an Estate 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 can get nursing home Medicaid, you can use a Medicaid Qualifying 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 home. Paying for a nursing home can drastically reduce a person’s savings. In NY, 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.

New York Medicaid Qualifying Trust to Avoid Nursing Home Costs

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 Qualifying Trust is a great way to secure your future eligibility for Medicaid. The keyword here is “future,” because a Medicaid Qualifying 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 are several other techniques we can use, such as a gift and loan or a spousal refusal.

As a part of creating a Medicaid Qualifying Trust in NY, 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 Qualifying 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”. Titling the property to the trust ensures that the Medicaid administration will accept the premise that Peter no longer has the money in his possession.

Once assets are put into a Medicaid Qualifying Trust in NY, 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.

The trustee you pick should be a person who is very close to you and whom you trust completely, such as a son or daughter, niece, nephew, or a close friend. If you don’t have a person like that, you can hire an attorney or professional trustee to manage your trust.

You can have more than one trustee — for example, two children and an attorney or a banker.

New York Medicaid Qualifying Trust Planning

Planning in advance is the key – A proper Medicaid Qualifying Trust which is more than five years old will qualify you for Medicaid bar none. A trust that existed for less than five years will incur a period of ineligibility for nursing home Medicaid. This is called the waiting period.

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. Your trustee would have to divert any income over the Medicaid limit to a pooled-income 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 Qualifying Trust is more than five (5) years old, you will qualify for Medicaid without a waiting period. Otherwise, the Medicaid administration calculates the period of ineligibility. They take the dollar value of the transfer and divide it by average monthly cost for nursing care (about $11,000 per month). The result would represent 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 ten months.

No Delay if there’s a “Qualifying Relative” – You may be able to have a Medicaid Qualifying Trust without the imposition of a penalty period if you transfer your property to a qualifying relative. This could be :

your spouse
your child who is under 21, blind or permanently disabled
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
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. An attorney will advise you on how to use Medicaid to cover the cost of medical care without depleting your assets. If you are looking to get nursing home Medicaid, planning well 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 Medicaid Qualifying Trust

The main advantage of a Medicaid Qualifying Trust in NY is that it allows you to receive Medicaid as opposed to spending your funds on medical care. You gain the benefit of protecting your family’s assets and have the estate be passed down to your family. It also has 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.

If you would like to find out more about how Medicaid Qualifying Trusts work in NY, you can call Albert Goodwin, Esq. at (212) 233-1233 or (718) 509-9774.

Can a Beneficiary of Undistributed Trust Principal Qualify for Medicaid?

Example: a Medicaid recipient is a beneficiary of a trust, he is to get the funds upon the death of the person who made the trust. The person who made the trust died two years ago. The money was not distributed yet, money stayed in the trust for two years. The person kept getting Medicaid, without disclosing the trust to the New York HRA.

About this trust. This is not an income trust. This trust is almost like a will. The beneficiary simply gets the funds upon the death of the person who made the trust. This is not a medicaid trust or special needs trust. The principal of the trust is available for an immediate distribution to the beneficiary.

Did the Medicaid recipient qualify for Medicaid? No. As a rule, anything available to the recipient is counted as an asset. Even if the beneficiary does not yet have access to it.

Should the recipient have reported the trust as an asset to Medicaid? Yes.

Can he disclaim the trust? Deadline for disclaimer is 9 months, so if he’s had a trust for two years, he’s past the deadline. But that’s beside the point, because a disclaimer wouldn’t help for Medicaid anyway – the HRA would count the trust as an asset.

Can he transfer the funds to someone else? He may be able to transfer the funds to someone else and try to qualify for Medicaid after the transfer.

Will there be Medicaid recovery? Medicaid is likely to ask for recovery for the time a person was receiving Medicaid while having this trust asset. The Medicaid recipient could possibly transfer the funds and then qualify for Medicaid, but would still suffer from recovery for the time they had Medicaid while having a trust asset. He would not necessarily have to pay the full amount of the recovery claim, there is room for negotiation. However, one would have to be careful, as the New York HRA does have the authority to escalate the claim to a criminal investigation.

Call the Law Offices of Albert Goodwin at (212) 233-1233, New York estate, guardianship, wills, trust, medicaid and probate lawyer, and make an appointment to discuss your situation.

New York Special Needs Trusts Explained

What is a Special Needs Trust

A Special Needs Trust is an arrangement where you leave money with a person or a company you trust who then uses the money to pay for your or your loved one’s needs.

For the trust to work and qualify you for Medicaid and SSI, this Trustee cannot give the money directly to you or your loved one. Rather, they will use the Trust to pay bills. As an example, think of it as a parent who pays for a child’s needs.

This arrangement is only allowed for someone who is disabled.

What Kind of Special Needs Trust is Right for Me

There are three basic types of Supplemental Needs Trusts:

If You’re Under 65: You can use your own money to make a First Party Special Needs Trust.

If You’re Over 65: You can use your own money to make a Pooled Special Needs Trust.

Regardless of Age: You can make a Third-Party Special Needs Trust for a disabled relative or a friend.

The three types of Special Needs Trusts are discussed below. As a rule of thumb, you’d always try to go for the trust with the least amount of restrictions.

First Party Special Needs Trust

If you are disabled and under the age of 65, you may qualify for a First Party Special Needs Trust.

The catch: With this trust, there is a catch – any money left over after you die will have to be paid back to Medicaid. The trust should contain a Medicaid payback provision. But since you will qualify for Medicaid during your lifetime while having the trust pay for your other needs, a First Party Special Needs Trust is still a great arrangement.

Even though it’s your money, the Special Needs Trust has to be created by your parent, grandparent or legal guardian. Or, if your parents are no longer alive and you don’t have a legal guardian, you submit documents to the Court to ask a Judge to create a trust for you.

When the Trust is formed by one of your relatives listed above, you will have a big say in who will be the Trustee selected to manage the money. When the trust is created by the Court, you will also have some say in who is the trustee. You can have a family or friend or a professional adviser manage it, and there are also companies that manage trusts professionally, their fees typically being around 1.25% per year.

We’ve seen First Party Special Needs Trusts being formed with money from a court settlement, inheritance, or just money that someone had before they realized that they qualify to have the trust pay for their needs and still receive Medicaid and SSI.

Charity Managed Special Needs Trust

Once you turn 65, you no longer qualify for a Special Needs Trust that’s managed by your relative or a friend or a trust management company. However, you may still qualify for a Charity Managed Special Needs Trust, where the trust is managed by a Medicaid-approved charity.

The catch: The catch with this trust is that any money left over after your death will remain with the charity. Also, the charity’s management fees are typically higher than the fees you’d get at a trust company’s, and obviously higher than having a relative or friend manage the trust for free. But for someone over the age of 65, a Pooled SNT does a great job paying for their needs while preserving their eligibility for Medicaid.

The Charity Special Needs Trust works to shield both assets and income from disqualifying you from Medicaid. Instead of assets and income being on your name, they go into the trust, with the trust using the assets and income to pay your bills.

This kind of trust is usually called a “Pooled Special Needs Trust,” but I think that calling it a “Charity Special Needs Trust” makes it easier to distinguish from the first type of trust we’ve discussed.

Third-Party Special Needs Trust

If you’re setting up a Special Needs Trust for your disabled relative, it will be a Third-Party Special Needs Trust. Those trusts work to have a trustee (a person or organization you trust) use that money to care for your disabled relative when you become disabled and when you die.

Almost no catch. A Special Needs Trust you set up for your disabled relative does not have to have a Medicaid payback provision. In fact, you can even decide what happens to any remaining assets after your disabled relative dies. The person who contributed the money has the right to cancel the trust at any time and take their money back. However, the Trustee is still not allowed to pay the disabled person directly, only use the trust to pay their bills.

The person who benefits from the trust does not have the ability to cancel the trust and get the money outright.

In order for a Special Needs Trust to do its job of qualifying you or your relative for Medicaid, the trust has to be formed with all of the proper procedures and notices. Some types of Special Needs Trusts have annual reporting requirements.

To find out if you qualify for a Special Needs Trust and which one works best for your situation, call the Law Offices of Albert Goodwin at (212) 233-1233, New York estate, guardianship, wills, trust, Medicaid and probate lawyer, and make an appointment to discuss.

Do I Qualify for New York Medicaid?

We made this page to help you check if you are eligible for New York Medicaid. We are a law firm that helps people qualify for Medicaid even if they don’t think they meet the below guidelines.

If you are thinking you should apply for Medicaid in NY, you may be wondering, “do I qualify for Medicaid?” To find out, check the guidelines for Medicaid eligibility:

If you are aged over 65 or you are disabled:

Income Limit

The Medicaid income limits in NY are as follows, as per NYS Medicaid income guidelines for those who are considering to apply for Medicaid:

Family Size	Monthly Income
1	$825
2	$1,209

See the official Medicaid income limit for people aged over 65 or disabled here.

The way income is calculated depends on the Medicaid district. Some districts have specific income disregards where they disregard a part of your income so you can qualify even if your income is above the guidelines.

Our law firm may be able to help you become a part of a pooled income trust, which would exempt your income over the threshold from being considered by Medicaid.

Resource Limit

Family Size	Total Resources
1	$14,850
2	$21,750

You can transfer your assets to someone else or better yet, transfer the money into a Medicaid trust and qualify for Medicaid. You will qualify on the first of the following month. If you are going to a nursing home, however, there are asset transfer limits – see below.

There is a homestead exemption, so you still qualify for Medicaid if you own a home with an equity of up to $825,000. A home equity loan or reverse mortgage can be used to reduce equity.

If you are disabled but under the age of 65, you may qualify for a special needs trust, which this law firm can help you set up.

If you are under 65 and not disabled:

Income Limit

Family Size	Total Resources
1	$1,387
2	$1,868
3	$2,349

In our chart, we’re using the common 138% Federal Poverty level standard of qualifying for New York Medicaid.

There are some situations where you can have a bigger income and still qualify. For example, a pregnant woman or a baby under 1 year of age can qualify with an income that’s 224% of the federal poverty level (that’s $3747 per month for a family of three). Children age 1-5 can qualify with income that’s 154% of the federal poverty level.

On the other hand, there are some situations where you need an even smaller income to qualify, for example, if you’re getting Medicare (your income has to be as low as 100% of the federal poverty level in order to qualify).

Resource Limit

No resource limit for individuals or families who are under 65 and not disabled

See the official New York Medicaid income and resource level chart here.

If you need a nursing home:

There are extra Medicaid rules and restrictions for people who require nursing home care:

Asset Transfer Limits – Transferring assets to someone else will disqualify you from Medicaid for about a month for every $12,000 you transfer.

Let’s say you’ve given away $120,000. That will disqualify you from Medicaid for about 10 months.

The idea is to force the people to whom you gave the money to return it to you so that you can pay for the nursing home.

Mandatory spend-down – You must pay all of your income over $50 to the nursing home. There is a work-around for that, however, called a pooled income trust.

You can keep your home – You will be allowed to keep your home. You will need to fill out the correct paperwork showing the intent to return home. But be careful to avoid a Medicaid recovery lien on the home – Medicaid will place a lien on the home to recover money after your death. There is a work-around for that too – you can easily avoid a Medicaid recovery lien by creating a Medicaid trust or doing a qualified transfer.

Spousal refusal – the spouse who remains out of the nursing home can sign a spousal refusal so that they can keep their income and their income will not disqualify their spouse from Medicaid. Medicaid has the right to sue the spouse, but that usually does not happen. Under the new Affordable Care Act rules, some people no longer qualify for a spousal refusal.

Ways to Qualify for Medicaid if You Don’t Meet the Thresholds

Even if you don’t think you meet the above thresholds, there are still tools that New York State authorizes us to use in order to help you qualify for Medicaid. You can browse our website to read more about tools such as a Medicaid trusts, special needs trusts, pooled income trusts, life estates, annuities, qualified transfers and gift and loan.

For this article, we’ve presented a simplified version of the rules to make it easier to grasp the basic ideas. The goal was to make as simple a guide as possible. The actual rules are more complicated, involve more numbers and depend on your particular situation. So even if you think you qualify, you might not, and vice-versa. If you are still wondering “do I qualify for Medicaid,” we would be glad to schedule a confidential consultation and explain your Medicaid eligibility and the tools we can provide to help you qualify for New York Medicaid, taking into account the Medicaid income limits and NYS Medicaid income guidelines.

Law Offices of Albert Goodwin assists people to qualify for Medicaid even when they think they don’t have Medicaid eligibility. We can also help you apply for Medicaid. To find out more about Medicaid planning techniques, you can give us a call at (212) 233-1233 or (718) 509-9774.

Using a Note Payable to Qualify for Medicaid – Gift and Loan Strategy

note payable medicaid gift and loan
There is a five-year look back when it comes to the transfer of assets. This means that the best time to plan for Nursing Home Medicaid is five years before you need it. Most people, however, only start panning for Medicaid when they are already on the nursing home steps. A gift and loan strategy involving the use of a Promissory Note (Note Payable) is a way to preserve at least half of the Medicaid recipient’s assets.

The look-back period starts on the day of Medicaid eligibility. What this means is that, if there was a transfer of assets, such as a house, to a family member with no compensation, that full amount would be used to determine a period of Medicaid not paying for nursing home expenses. The main purpose of this is so people do not make last-minute transfers of their assets when it appears that they are going into a nursing home in the hopes of getting Medicaid eligibility to have their expenses paid for.

There are a few exceptions to this rule, however. One is that transfers made to a loved one in exchange for health care that keeps you out of a nursing home would most likely not result in a penalty period. Also, a strategy called gift and loan can be very effective. It works by transferring assets in exchange for a promissory note that meets very specific criteria would also help protect some assets, resulting in more property going to a family member.

For example, if you transfer a $300,000 family home to your child, with $150,000 of it being a loan with a Promissory Note (Note Payable) with payments that would be used to pay nursing home expenses and the rest being a gift transfer, the result could be that there is only a penalty period on the gift part of the transfer of the entire transfer is done correctly with the assistance of a New York Medicaid attorney. The key is making sure that the Promissory Note (Note Payable) meets all the DRA qualifications.

Specifically, for a promissory note to work in a way where it does not result in a penalty period for the Medicaid applicant, the following criteria must be met:

• The repayment term must be actuarially sound (not last longer than the life of the lender)
• Payments must be made in equal amounts, meaning no balloon payments or deferrals
• The loan must not be canceled upon the death of the lender.

If these criteria are met, the promissory note is a valid way under the DRA to avoid as much of a penalty. In the example above, the penalty would only be based on the gift part of the transfer, with the promissory note payments taking care of the nursing home expenses during that part of the nursing-home stay. The result is that much of the home’s value would end up going to the child who the transfer was made to, rather than the nursing home.

When the Debt Reduction Act of 2005 was passed, the world of Medicaid planning was somewhat shaken up, especially when it came to the look-back period and how the penalty period was determined when it came to nursing home eligibility. Medicaid planning is confusing at the best of times, and making a mistake can cost you dearly. However, by using strategies such as using DRA qualified promissory notes, one can hope to preserve some of their assets for their loved ones, while still ensuring that they have the funds needed to cover a potential nursing-home stay. Medicaid planning is complex and should not be undertaken alone. It is important to contact a New York Medicaid planning attorney who can help you plan your Medicaid future.

Call the Law Offices of Albert Goodwin at (212) 233-1233, and make an appointment to discuss your gift and loan strategy.