Long-term care insurance is the preferred option for protecting assets from nursing home costs, since it is the only one that helps keep clients out of the nursing home – by paying for home care.  We’ve had many clients over the years who were forced to spend their final days in a facility simply because they ran out of money to pay for home health aides.  Additionally, for married couples, the home care option may protect the well spouse not requiring the care from compromising their own health and finances with the heavy burden of caregiving in their later years.

        When the client is turned down for long-term care insurance, or is unable to afford the premium, the next best option is the Medicaid Asset Protection Trust.  Please note that making assets joint with adult children offers no protection since Medicaid considers all of the jointly held assets to be available for the care of the ill parent, except to the extent the child can prove the amount of their actual contribution (usually none).  Additionally, outright transfers to children are generally inadvisable since those assets then become exposed to the children’s debts and liabilities, divorces, etc.  In addition, some children spend the money, refuse to give it back when needed or, unfortunately, die before the parent and pass those assets on to their heirs.  One exception to the inadvisability of outright transfers to children is when nursing facility care is imminent or at least foreseeable.  In such a case, the assistance of an elder law attorney is essential since the amounts to be transferred, the order of assets transferred and where to transfer the assets all require the advice of counsel.  The object here would be to protect as much of the assets as possible and to qualify for Medicaid benefits at the earliest possible moment.  If someone is just getting older, can’t or won’t get long-term care insurance and wants to plan ahead to protect their assets, again, the best option is to set up a Medicaid Asset Protection Trust.

    Known as an “income only” trust, the Medicaid Asset Protection Trust names someone other than you or your spouse as the trustee, usually one or more adult children, and limits you to the income.  The principal must be unavailable in order for it to be protected.  These trusts are ideal for the family home as well as for assets the client is only taking the income from anyway or is simply reinvesting.  The client’s lifestyle is not generally affected since they still receive their pension and Social Security checks directly, they keep the exclusive right to use and occupy the home and they preserve all the tax exemptions on the home.  The trust can sell and trade assets through the trustee and you retain some measure of control by reserving the right to change the trustee in the event of dissatisfaction for any reason.

    The Medicaid Asset Protection Trust is subject to a look-back period of up to five years.  This means that if assets are transferred and the client needs nursing home care any time after five years have passed, the assets in the trust are protected. Nevertheless, it always pays to get started, since you get credit for the time you accumulate, even if you don’t make the five years.  For example, if the client needs nursing home care, say, after only four years, then they would only have to pay for the one year that’s left.

    The Medicaid Asset Protection Trust is also flexible.  You may sell the home, the money is paid to the trust, and the trust can buy a condominium, for example, in the name of the trust so it is still protected.  The trust may buy and sell and trade stocks and other assets.  IRA’s and other qualified plans stay out of the trust since all such retirement plans are exempt from Medicaid.  They also avoid probate since they go directly to the designated beneficiaries at death.

    There is also no reason to fear the “irrevocable” nature of the Medicaid Asset Protection Trust, since it may be revoked, although not by you alone, on the written consent of all the named parties.  Since that is just you and your immediate family, it generally proves easy to undo the trust if that is needed for any reason (for example, if you wish to take out a reverse mortgage later on).