Medicaid Asset Trust Attorney serving Pheonix, Arizona and the surrounding areas.
The main benefit of a medicaid asset protection trust is that the assets you transfer into the trust sixty months from when you apply for benefits will not count towards the medicaid asset limit and will not be clawed back by ALTCS upon your passing.
In addition, a medicaid asset protection trust will confer asset protection from creditors and lawsuits (so long as it isn’t a fraudulent transfer).
What is an Irrevocable Asset Medicaid Trust?
An irrevocable medicaid trust is an irrevocable trust designed to protect the medicaid recipient’s assets or to reduce income to ensure the recipient is able to qualify for benefits. Arizona has two main government benefit programs for those who qualify. Arizona Long Term Care System (ALTCS) and Arizona Health Care Cost Containment System (AHCCCS). ALTCS is a department within AHCCCS, but they provide different services and have different requirements.
When people think of an Arizona Medicaid Trust, they are referring to a trust designed to protect assets from or qualify the person for ALTCS.
The Benefits of a Medicaid Trust
The main benefit of a medicaid asset protection trust is that the assets you transfer into the trust sixty months from when you apply for benefits will not count towards the medicaid asset limit and will not be clawed back by ALTCS upon your passing. In addition, a medicaid asset protection trust will confer asset protection from creditors and lawsuits (so long as it isn’t a fraudulent transfer).
One of the best assets to place in a medicaid trust is your home. Doing so allows you to live there for life or until you need to go into assisted living. While the home is not counted as an asset for ALTCS eligibility, they will place a lien on the house and may force a sale if a qualified person no longer lives there.
How a Medicaid Asset Protection Trust Works
Put simply, a medicaid asset protection trust works by transferring legal title to your assets to a trusted person who will hold the assets in trust for the benefit of your beneficiaries. By transferring your assets before applying for benefits, you will protect your loved ones’ inheritance from ALTCS clawbacks and spend down provisions.
Sounds great right? Well, unfortunately, it’s not quite that simple. There are three major downsides to the asset protection trust. One, you must transfer the assets sixty months (five years) before applying for ALTCS (medicaid); two, you must give up complete control over the assets transferred in trust to the trustee; and three, the trust is irrevocable, meaning you cannot undo it without the consent of all parties involved. In addition, with few reservations, you may not serve as trustee of your own medicaid asset protection trust.
The Medicaid Trust Components (Trustee & Beneficiaries)
All trusts consist of three parties, the trustee, the grantor, and the beneficiary(ies). You are the grantor or settlor in this scenario. You will place the assets you wish to be protected in the care of a trustee to hold and administer for the benefit of the beneficiaries (your loved ones or charity).
You and your spouse may not act as a trustee of the trust, but you may retain the ability to remove and replace the trustee. While you no longer have control over the assets placed in the trust and cannot receive principal distributions from the trustee, you may continue to receive income generated by the trust. You may also retain a limited power of appointment allowing you to change the ultimate beneficiaries. Retaining such a power also gives your assets a step up in basis upon your death and significant tax savings during your life.
As you can see, there are a number of considerations to consider when thinking about a medicaid asset protection trust. One of the largest considerations is whether creating one is ultimately worth it and if so, how much to fund it with. Only an expert trusts and tax attorney can walk you through the most important questions and give you answers as to the tax implications, what controls you must give up, and what control you have left.
Deciding whether a Medicaid Asset Protection Trust is right for you depends on a number of factors: the size of your estate, how much liquid assets you possess, your relationship with intended beneficiaries, and timing concerns. Your situation is unique, which is why it is important to meet with an experienced medicaid trust attorney to evaluate which plan is best for your particular situation.