How to Protect Estate Assets of Someone on Medical Assistance
Choose the type of trust., Decide on trustees., Calculate the look-back period., Draft the trust documents., Execute the trust documents., Transfer assets into the trust.
Step-by-Step Guide
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Step 1: Choose the type of trust.
To protect the estate assets of someone on medical assistance using a trust, the trust created generally must be irrevocable.
Creating a revocable trust would mean the person still had control over the assets in the trust.With an irrevocable trust, however, the person no longer owns the assets.
Rather, the assets belong to the trust.
Since the assets in the trust don't belong to the person on medical assistance, they can't be seized by the government to recoup the costs of the person's medical care after their death.
Rather, the assets are held by the trust for the benefit of the heirs named by the person who creates the trust.
If the person on medical assistance is married, they may want to create a joint trust rather than an individual trust.
A joint trust includes all marital assets. -
Step 2: Decide on trustees.
The trust must name a trustee.
Typically it's best if the person on medical assistance is not the trustee.
Otherwise, the state may determine they still maintain control over the assets in the trust.
Similarly, the person's spouse shouldn't be the trustee.
When looking at assets of a married person, the assets in control of both spouses are considered for the purposes of qualifying for medical assistance.
To ensure the trust is properly managed, many people name an attorney or financial advisor as trustee.
Also name a successor trustee.
This person will take over in case the trustee becomes unavailable.
It may be another attorney or financial advisor, or another family member. , When someone applies for medical assistance, the state looks back at their income and assets for the five years before the application was filed.
Any transfers made to protect estate assets can result in penalties.State and federal law requires people on medical assistance to spend down any assets they have that exceed the legal limit before they can qualify for the government service.
If someone on medical assistance transfers all or most of their assets to a trust during this period, the state presumes this was done to exclude those assets for the purposes of qualification.
As a result, the state will deem the person ineligible for a period of time, based on the value of the assets that were transferred.
The period of time is measured based on the cost of medical assistance for nursing home care each month.
For example, if that cost is $3,000 and the person transferred assets worth $27,000 to a trust, that person would be ineligible for medical assistance for nine months.
To avoid this penalty, the trust must be created more than five years before the person applies for medical assistance.
However, even if the penalty applies, the assets still are not subject to liens or seizure by the state to cover the costs of the person's medical assistance. , It can be relatively simple to find forms or templates online that you can use to create a simple trust.
However, if the goal is to protect the estate assets of someone on medical assistance, you may want to consult an attorney.The trust begins by naming the trust and identifying the trustees and successor trustees.
The property in the trust is listed, along with the names of the beneficiaries of the trust.
Typically beneficiaries are children or grandchildren of the person on medical assistance, but they may include others as well.
If the person on medical assistance (or who will potentially be on medical assistance in the near future) already has a will, that document can serve as a guide to designating the beneficiaries of the trust.
Keep in mind that if the person already has estate planning documents, they will need to be updated to reflect the trust that has been created.
You may want to consult an estate planning attorney to help. , The finalized trust documents must be signed by the person on medical assistance before the trust goes into effect.
Typically the signatures must be notarized.
Some states may require additional witnesses.Some states also require more than one original signed copy.
Check your state law or contact an estate planning attorney to find out.
Make copies of the signed, notarized documents.
Each trustee or successor trustee should have one, as well as the person who created the trust and their spouse.
You also may want to make copies for beneficiaries, particularly those who will be receiving real property. , After the trust has been executed, all assets listed can be transferred into the name of the trust.
This may require opening bank accounts in the name of the trust, or executing other transfer documents such as deeds.Before you set up bank accounts or transfer real property to the trust, you'll need to get an employer identification number (EIN) for the trust from the IRS.
Despite the name, an EIN isn't just for employers.
You also must get one for a trust that will hold assets, particularly income-generating assets.
You'll also need an EIN to open up bank accounts in the name of the trust.
Once you have an EIN for the trust, you transfer assets into the name of the trust just as you'd transfer assets to any other individual or business entity. -
Step 3: Calculate the look-back period.
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Step 4: Draft the trust documents.
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Step 5: Execute the trust documents.
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Step 6: Transfer assets into the trust.
Detailed Guide
To protect the estate assets of someone on medical assistance using a trust, the trust created generally must be irrevocable.
Creating a revocable trust would mean the person still had control over the assets in the trust.With an irrevocable trust, however, the person no longer owns the assets.
Rather, the assets belong to the trust.
Since the assets in the trust don't belong to the person on medical assistance, they can't be seized by the government to recoup the costs of the person's medical care after their death.
Rather, the assets are held by the trust for the benefit of the heirs named by the person who creates the trust.
If the person on medical assistance is married, they may want to create a joint trust rather than an individual trust.
A joint trust includes all marital assets.
The trust must name a trustee.
Typically it's best if the person on medical assistance is not the trustee.
Otherwise, the state may determine they still maintain control over the assets in the trust.
Similarly, the person's spouse shouldn't be the trustee.
When looking at assets of a married person, the assets in control of both spouses are considered for the purposes of qualifying for medical assistance.
To ensure the trust is properly managed, many people name an attorney or financial advisor as trustee.
Also name a successor trustee.
This person will take over in case the trustee becomes unavailable.
It may be another attorney or financial advisor, or another family member. , When someone applies for medical assistance, the state looks back at their income and assets for the five years before the application was filed.
Any transfers made to protect estate assets can result in penalties.State and federal law requires people on medical assistance to spend down any assets they have that exceed the legal limit before they can qualify for the government service.
If someone on medical assistance transfers all or most of their assets to a trust during this period, the state presumes this was done to exclude those assets for the purposes of qualification.
As a result, the state will deem the person ineligible for a period of time, based on the value of the assets that were transferred.
The period of time is measured based on the cost of medical assistance for nursing home care each month.
For example, if that cost is $3,000 and the person transferred assets worth $27,000 to a trust, that person would be ineligible for medical assistance for nine months.
To avoid this penalty, the trust must be created more than five years before the person applies for medical assistance.
However, even if the penalty applies, the assets still are not subject to liens or seizure by the state to cover the costs of the person's medical assistance. , It can be relatively simple to find forms or templates online that you can use to create a simple trust.
However, if the goal is to protect the estate assets of someone on medical assistance, you may want to consult an attorney.The trust begins by naming the trust and identifying the trustees and successor trustees.
The property in the trust is listed, along with the names of the beneficiaries of the trust.
Typically beneficiaries are children or grandchildren of the person on medical assistance, but they may include others as well.
If the person on medical assistance (or who will potentially be on medical assistance in the near future) already has a will, that document can serve as a guide to designating the beneficiaries of the trust.
Keep in mind that if the person already has estate planning documents, they will need to be updated to reflect the trust that has been created.
You may want to consult an estate planning attorney to help. , The finalized trust documents must be signed by the person on medical assistance before the trust goes into effect.
Typically the signatures must be notarized.
Some states may require additional witnesses.Some states also require more than one original signed copy.
Check your state law or contact an estate planning attorney to find out.
Make copies of the signed, notarized documents.
Each trustee or successor trustee should have one, as well as the person who created the trust and their spouse.
You also may want to make copies for beneficiaries, particularly those who will be receiving real property. , After the trust has been executed, all assets listed can be transferred into the name of the trust.
This may require opening bank accounts in the name of the trust, or executing other transfer documents such as deeds.Before you set up bank accounts or transfer real property to the trust, you'll need to get an employer identification number (EIN) for the trust from the IRS.
Despite the name, an EIN isn't just for employers.
You also must get one for a trust that will hold assets, particularly income-generating assets.
You'll also need an EIN to open up bank accounts in the name of the trust.
Once you have an EIN for the trust, you transfer assets into the name of the trust just as you'd transfer assets to any other individual or business entity.
About the Author
Alexis Evans
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