Asset
Protection with a Medicaid Trust
We are often asked what the difference is between the revocable living trust (RLT) and the irrevocable Medicaid trust (IT). While there are many different types of IT’s, the one we are concerned with here is the IT for Medicaid planning purposes.
In a RLT you, and your spouse if you have one, generally act as the trustees, or managers, of the trust. You can take anything out, or put anything in, at any time. However, if you can get it, a nursing home can get it.
Many people, however, due to age or infirmity, would like to plan ahead and protect their assets. As people get older, they generally have to confront the very real possibility of losing some or all of their assets to a nursing home and they begin to go about surveying their options to protect assets. Long-term care insurance, the first option, is too expensive for many people or they do not qualify medically. In such cases, there are still two other options. Transfer the assets outright to your children or set up an IT. People who are aware of all the pros and cons regarding the two choices generally choose the IT for the following reasons. If you transfer the assets to your children, you just never know what might happen -- if they get sued, divorced, have a bankruptcy or, heaven forbid, die before you, you can lose everything. Not to mention they might just spend it or refuse to give it back to you later when you need it.
With the IT you are protecting the assets because whatever amount you put into an IT is not available for your care -- so you can protect as much or as little as you like by planning ahead. With the children named as trustees, they are only the managers, not the owners (the trust is the owner) so they cannot spend it and their creditors or ex-spouses cannot get it. They can only do what the trust allows them to do, which is to pay you the income.
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