Medicaid trusts are often implemented when an individual may need future nursing home care, and desires to preserve assets for their healthy spouse or their children.  The grantor enters an arrangement whereby they give up rights to property supporting their current lifestyle and future financial needs, in order to position themselves to be a better candidate for state support in the event of a nursing home confinement.  Medicaid applicants are subject to a 5-year look back period, in which gifted or transferred assets, cause a penalty period of ineligibility.

As a counselor to our clients, we are often at the hub of the decision-making and communication dynamics of families contemplating this planning milestone.  In contrast to Medicaid Trusts, we advocate that our clients purchase long-term care insurance, in situations where it makes sense, largely due to behavioral reasoning. We’ve found that when the insurance company is the primary resource   for home health care expense outlays, clients willingly arrange for the appropriate level of care.  Without a third party payer, families have a tendency to identify care items they can do without, potentially to the detriment of the healthy caregiving spouse and the spouse needing care. At RTD, we can assist our clients in identifying the best insurance strategy, but do not sell long-term care insurance.

Funding an irrevocable Medicaid trust means relinquishing control of the assets to the appointed trustees.  Once established, the trust assets can supplement the financial needs of an individual qualifying under state Medicaid as payer of custodial nursing home care. The trustees have discretion to distribute funds for additional care costs beyond the limited Medicaid stipulated amounts.

Are remainder beneficiaries the most appropriate trustees for a parent’s Medicaid trust? Does having control over these funds change the original purpose of the trust?  Will their behaviors be influenced by a desire to preserve the remainder?  Are the trustees able to scrutinize care giving requirements in a way that filters out conflicts of interest?

Whose money is it? It was the parents’ money.  Whose money is it now?

Decisions to give up control of assets in the remaining years of people’s mature lives are tough decisions. Thoughtful consideration needs to be used when balancing the desire to leave children an inheritance and the desire to maintain dignity in the last years of life.