Medicaid Trusts in New York City

What is a Medicaid trust?

A Medicaid trust is a legal entity that shields your income or assets from being considered when your Medicaid eligibility is determined. It also protects your property from future Medicaid liens.

What does a Medicaid trust do?

A Medicaid trust allows you to qualify for Medicaid even if your income or assets are over the allowed limit. It also protects your property from Medicaid liens. You can have the government pay for medical care, home health aides, and nursing home. A New York Medicaid trust is a valuable tool that helps protect your assets, allowing you to leave your estate to your family instead of using your money to pay for medical and nursing home care.

If a primary residence does not count as an asset, why do I need a Medicaid trust?

Even though a personal residence does not count as an asset for determining your eligibility for Medicaid, the Department of Social Services can still place a lien on it after your death, so that the house would have to be sold to satisfy the lien instead of going to your heirs as an inheritance. A Medicaid trust protects your property from the Medicaid lien, allowing the property to go to your children as an inheritance instead of to the government.

Will I need an attorney?

Forming a Medicaid trust is not a simple matter and should only be handled by an experienced attorney. You do not want Medicaid to reject the trust and deny your application or approve it for now only to go after your assets in the future.

To properly form a Medicaid trust, your attorney will need to make sure that the document is drafted correctly and funded so that the assets are transferred to the trust. If you are looking for a Medicaid trust attorney, you can send us an email at [email protected] or call us at 212-233-1233.

What can happen if I don’t have a Medicaid trust?

If you don’t have a Medicaid trust, Medicaid can deny your application or go after your assets at some time in the future. Medicaid can place a lien on your house. They can foreclose on the deed at any time. Without a Medicaid trust, Medicaid can also submit a claim in your estate after your death demanding that Medicaid’s claim be satisfied before the estate is paid out to your children.

What does a Medicaid trust consist of?

A valid Medicaid trust has to have the following things in it:

• 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 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.

What does the trustee do?

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. Your trustee will manage the property for you.

Who can be the trustee of a Medicaid trust?

When you make a New York Medicaid Trust, 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 select their child, niece or nephew or sibling. You are also able to name a third party as a trustee. For example, a trustee can be your attorney, accountant or financial advisor. There are also companies that specialize in offering trustee services. It is more cost-effective to have your relative serve as a trustee, as they typically don’t require compensation for their service.

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

Will I maintain control over my property when I make a Medicaid trust?

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 suggestions to the trustee as to how to manage your property. If you would like to move, the trustee will be able to sell the property and use the proceeds to buy a new property for you to move into. You will also be able to change who gets the property after your death, by using a power of appointment.

Can I collect rent on property that is in a Medicaid trust?

If you are renting out a part of the property, you will still get the rent. Keep in mind that the rent would count as your income for Medicaid purposes. Remember that Medicaid Asset Protection Trust only works for assets, not for income. So if your total income exceeds the Medicaid limit, you may need a second trust, called a pooled trust, to shield that income from being counted towards Medicaid eligibility.

Will I be able to sell my property that is in the Medicaid trust?

And if you would want to move, your trustee can sell your house and buy a different house for you.

Can I cancel or revoke my Medicaid trust?

Yes, you are able to revoke your Medicaid trust, but only if everyone involved signs a consent. You will need yourself, the other person who contributed to the trust with you, the trustees and the beneficiaries to sign consents in order to revoke a Medicaid trust. But keep in mind that when you revoke a Medicaid trust, you lose its Medicaid protection benefits retroactively. So you will not only stop qualifying for Medicaid, but you will also be responsible to pay back any benefits you received from Medicaid while you had the trust.

Can I change who inherits and what their percentages are?

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.

So for example, if you get upset at one of your children, you will be able to cut them out of the trust. Or if will find that one of your children is not doing as well and will need more support than the others, you will be able to allocate a bigger share of the trust to that child.

Can I place my co-op apartment into a Medicaid trust?

Some co-ops allow trusts and some don’t. Some allow trusts but have additional requirements. You can check with your co-op’s management to find out if your co-op allows Medicaid trusts.

Do I need more than one Medicaid trust?

If you have assets that you don’t want to count towards your Medicaid eligibility, you would make a Medicaid Asset Protection Trust (MAPT). If you are an older adult, you will probably choose your adult child to be the trustee of the Medicaid Asset Protection Trust.

If your income is over the Medicaid threshold limit, you will also need to a second trust.  You will need to be a part of a Pooled Income Trust. Unlike the asset trust, the income trust is not managed by your family members. It will be 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. After your income passes through the income trust and the organizational trustee takes out its fees, the trustee uses your income to pay your expenses. If a surplus remains, it gets rolled over until you need it. After your death, the income from the pooled trust, unfortunately, stays with the nonprofit that manages the income trust. Unlike the asset trust, the income trust does not pass to your children after your death.

The asset trust is called Medicaid Asset Protection Trust, and the income trust is called the Pooled Trust, or Community Spend-down Trust (because it helps you avoid the Medicaid spend-down).

IRA, 401(k) and other qualified retirement accounts are not required to be a part of the Medicaid 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 New York Medicaid but also has other benefits.

Is there a delay before a Medicaid trust starts working?

There may or not be a delay before the Medicaid trust kicks in, depending on the kind of property is involved.

For a primary residence, the benefits of a Medicaid trust start accruing right away, because you will qualify for Medicaid as long as the equity in your residence is less than about $870,000 and Medicaid has a record of not putting recovery liens on property interests.

There are three kinds of Medicaid: “Regular,” “Home Care,” and “Nursing Home.” You can be eligible for “Regular” Medicaid right away. There is a two and a half year waiting period for home care Medicaid. And 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.

For any property other than the primary residence, you would need to wait five years to qualify for nursing home Medicaid or two and a half years to qualify for home care Medicaid. You would qualify for regular Medicaid right away.

Five-year look-back for a nursing home: 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:

Are there any downsides to a Medicaid trust?

Like anything else in life, a Medicaid trust does have some downsides, which are typically not significant when looking at the benefit of receiving Medicaid.

• You will lose a degree of control over your assets. This may not be a problem if the asset is a house and you are living in it, as the trust will expressly state that you have the right to occupy the house for the duration of the trust
• You will not be able to use the principal for your own benefit; you will only get the income. For example, if you are renting out a part of your house, you will get the rental 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, but a Medicaid trust still minimizes a chance of recovery
• If the Medicaid trust is a Special Needs Trust that is made with the beneficiary’s own assets, it will require a provision to pay back Medicaid upon the beneficiary’s death

Whatever money and property you place into a Medicaid Trust, you give up some 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 you are putting your house into the Medicaid trust, you and your spouse will have the right to live there for the rest of your life and you will get the rental income if you are renting out a part of it. 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.

A Medicaid Trust is right for you only if you want to get Medicaid and are willing to live with those relatively minor trade-offs.

Will a Medicaid trust also help me obtain SSI, Section 8 and SNAP Benefits?

When you set up a New York Medicaid trust, this same trust can also help you qualify for SSI (Supplemental Security Income), SNAP (Supplemental Nutrition Assistance Program or 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 Trust.”

Will a Medicaid trust affect my taxes?

When you place your house into a Medicaid trust, you get the benefit of qualifying for Medicaid with no tax downsides.

After a person dies and leaves property to their heirs, the heirs can sell that property without having to pay capital gains taxes on the increase of the value of the property since the time it was bought. This is called “step-up cost basis” in tax jargon. Medicaid trust allows you to keep your “step-up” cost basis with the IRS, so that your heirs will not have to pay capital gains taxes when they sell the house.

Many New Yorkers qualify for STAR (School Tax Relief) tax exemption. You will maintain your STAR exemption.

If you have tax abatements, you will be able to keep those too.

A correctly drafted Medicaid trust is grantor trust and a pass-through trust for tax purposes and should therefore not have any tax impact. Make sure the you retain an experienced attorney for your Medicaid trust, so that you can preserve your tax benefits. Like with any tax issue, make sure to discuss the trust with your accountant, so that your taxes are filed correctly, to be taxed at a personal rate and not at a trust rate.

Are there alternatives to a Medicaid 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 relatively small trade-off is too much for you or it’s too late to make a New York Medicaid trust because you are already about to go into a nursing home or need home care, 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 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 nursing home 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.

Can I also use a Medicaid trust to plan my estate?

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 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 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 people 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 keyword 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 are several 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”. 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 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.

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.

Planning in advance is the key – A proper Medicaid 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 if I place my primary residence into a trust?

Most people place their primary residence into a Medicaid trust. So they would qualify for Medicaid even without the trust. However, the trust will protect against Medicaid liens, so that the proceeds of the property will go to your heirs after your death, not to the government.

When will I begin to qualify for Medicaid if I place assets into the trust that are not my primary residence?

Delayed Effective Date – You will begin to qualify for home care Medicaid two and a half years after you make the transfer of property into the trust. Once the trust is more than two and a half years old, you will qualify for home-care Medicaid. When the Medicaid Trust is more than five (5) years old, you will qualify for nursing home Medicaid without a waiting period. Otherwise, the Medicaid administration calculates the period of ineligibility. For example, for nursing home medicaid, they take the dollar value of the transfer and divide it by the 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.

But for a Medicaid trust that only contains a primary residence, you get a benefit of the Medicaid trust and will be able to qualify for Medicaid right away in most cases.

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. This could be :

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.  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 Trust

The main advantage of the New York Medicaid trust 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 New York Medicaid Trusts, we at the Law Offices of Albert Goodwin are here for you. We have offices in New York City, Brooklyn, NY and Queens, NY. You can call us at 212-233-1233 or send us an email at [email protected].