Is a Living Trust useful in Medicaid Planning?

This column first appeared in the San Antoni0 Express News on January 16, 2017.

Dear Mr. Premack: My parents are in their 80’s and have set up a Living Trust to help them qualify for nursing home Medicaid should they need financial assistance when the time comes. I had read that trusts could be used to hide assets from Medicaid by naming the children as beneficiaries of the trust. I am wondering if this approach will work now that the government is about to be cont

The future of Medicaid is certainly unclear under the Trump administration. During his campaign, Mr. Trump stated that he would not support any reduction in Social Security, Medicare or Medicaid. Since then, he has voiced tentative support for changing Medicaid into block grants to the states, an idea favored by Congressional Republicans.

Block grants would eliminate federal oversight and federal standards for Medicaid. Instead, each state would be allowed to sculpt its own rules, benefits and restrictions. Texas Governor Abbott is a strong supporter of block grants. As a cautionary example, when the federal government shifted the TANF (temporary assistance to needy families) program to block grants, Texas became the second lowest of all states in the amount of resources available to help those in poverty. We don’t know what Congress, Trump and Abbott may do with block grants for Medicaid, but there is reason to watch closely.

As to Living Trusts: they are remarkably useful to help plan for a) financial management during a person or couple’s later years or disability, b) protection of frail elderly from scams, and c) avoiding probate. Living Trusts do not, however, offer any help at all in qualifying for Medicaid.

The opposite is actually true. A Living Trust can be cause for the state to classify the home as a countable resource (instead of as an exempt resource) when attempting to qualify for Medicaid. This came about after the Medicaid Estate Recovery Program (MERP) began to make claims in probate court against a deceased Medicaid beneficiary’s home. Using a Living Trust was a way to avoid probate, and thus to avoid a MERP claim. Medicaid decided that if a home was owned by a Living Trust then Medicaid would be denied up-front, which of course prompted people to stop using Living Trusts in this context.

MERP remained a concern, and attorneys eventually settled on the Lady Bird Deed (when properly prepared) as a legal way to avoid MERP claims against the homestead. Medicaid has acknowledged the effectiveness of Lady Bird Deeds to avoid Medicaid Estate Recovery.

Typically, a Lady Bird Deed will name the family’s children (or a subset of them) as after-death beneficiaries. However, sometimes the beneficiaries may be disabled or may be poor financial managers. In that case, a Living Trust can be created and can be named as beneficiary of the Lady Bird Deed. This works because the Living Trust owns no value in the homestead until the moment of the Medicaid patient’s death. The Trust only owns the homestead after Medicaid has ended, granting to its beneficiaries rights to use and to occupy the home. In this limited context, a Living Trust can still be used for Medicaid, so long as you are aware that in the broader context the Trust will not hide assets from Medicaid for the purpose of qualifying for benefits.

Paul Premack is a Certified Elder Law Attorney with offices in San Antonio and Seattle, handling Wills and Trusts, Probate, and Business Entity issues. View past legal columns or submit free questions on legal issues via www.TexasEstateandProbate.com or www.Premack.com.

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Paul Premack, 2019-2020 President of the Texas Chapter of the National Academy of Elder Law Attorneys (NAELA) is *Certified as an Elder Law Attorney ( CELA ) by the National Elder Law Foundation as accredited by the Texas Board of Legal Specialization and the ABA. He is licensed to practice law in Texas and in Washington State, and handles San Antonio Probate and Bexar County Probate, Wills, Living Trusts, Estate Planning, and writes the legal column for the San Antonio Express News.

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