Living Trust for Medicaid?

[PatrickA5]

Last night DW and I attended a seminar where an estate lawyer basically touts the benefits of a Living Trust. For the most part, we were impressed with the guy and his credentials and liked his presentation. We were already looking into getting a trust.

According to the lawyer, one of the "advantages" of setting up a living trust would be to save most of your assets from the ravages of long term care costs. In other words - shelter your assets so you qualify for Medicaid (he rarely actually used the word Medicaid). He explained how the 5 year look back period works and also that this would require an irrevocable trust.

Has anybody here taken this step to help qualify for Medicaid down the road? Our initial thoughts were that one of the reasons we saved up our money was to be able to afford quality LTC at the end of our lives. Would shielding your assets in order to qualify for Medicaid result in less quality nursing home care?

 

[Choices]

Let me get this right, this atty wants me to pay for your long term care even though you have the funds? And you then can pass on these “ funds” to others?
Seems immoral to me, so, no we are not doing this.
Just saying...

 

[PatrickA5]

Yes, that is what he's doing. I suspect this is a somewhat "popular" option. I saw several people nodding their heads in approval.

 

[pjm-7]

Why would you want to go through the Medicaid system to dictate your care? You and your family will have no say in the facility. I don't know what the amount is today, but a few years back the amount Colorado would pay was $800 per month. That doesn't sound like the kind of care I want. Find a new attorney.

 

[audreyh1]

Yes, that is what he's doing. I suspect this is a somewhat "popular" option. I saw several people nodding their heads in approval.

We recently had a desperate post from a daughter whose parents could not access the funds they needed to buy into a CCRC because they had put everything, including the house, into a trust in the attempt to protect their assets from Medicaid. The children were scrambling to try to try to break the trust so the parents could move to where they wanted. The initial lawyer said it could not be broken.

I think I now understand how the parents got themselves into this situation....

 

[CaliKid]

It's a common tool but be known it's NOT a regular revocable living trust like most people with assets should own. It's probably some type of irrevocable living trust. Plus, ethically it feels wrong to me.

 

[PatrickA5]

We recently had a desperate post from a daughter whose parents could not access the funds they needed to buy into a CCRC because they had put everything, including the house, into a trust in the attempt to protect their assets from Medicaid. The children were scrambling to try to try to break the trust so the parents could move to where they wanted. The initial lawyer said it could not be broken.

I think I now understand how the parents got themselves into this situation....

Right. As I was looking around the room, I could tell several people thought this was a good idea. I don't think they understand the "irrevocable" part of this scheme.

 

[PatrickA5]

It's a common tool but be known it's NOT a regular revocable living trust like most people with assets should own. It's probably some type of irrevocable living trust. Plus, ethically it feels wrong to me.

Yes, it was an irrevocable trust. He said there is some "flexibility" within the trust, such as investing the money as you see fit, etc. But, you can't take the principal out, which would be a non-starter for me.

Ethically, I have somewhat of a problem with people shielding (hiding?) assets to qualify for government benefits. I mean if you have the money, why have taxpayers pay for it? But, I can make the same argument when millionaires qualify for ACA subsidies.

 

[45th Birthday]

Ethically, I have somewhat of a problem with people shielding (hiding?) assets to qualify for government benefits. I mean if you have the money, why have taxpayers pay for it? But, I can make the same argument when millionaires qualify for ACA subsidies.

Totally agree. I cringe when I read about people with means managing income to qualify for a benefit that I'm subsidizing. The rules for ACA subsidies are far too lenient.

 

[athena53]

Every once in awhile I see an item in my FB feed from firms that I'm pretty sure are offering this strategy. I tell then what I think of them.

IMO, if every last dime I have goes to LTC, that's what it's there for (and DS, my only child, agrees). I'm also concerned that, as more and more people rely on Medicaid for their LTC (either because they genuinely have no assets or because they're locked away), the states are going to cut back on what they pay nursing homes and the places will be no better than warehouses. If I live to be 90 I want Wi-Fi, a library, regular dental care, an indoor pool and exercise classes. Medicaid will not foot the bill for that.

 

[PatrickA5]

Before we get too far off the original question...

Would shielding your assets in order to qualify for Medicaid result in less quality nursing home care?

 

[PatrickA5]

Every once in awhile I see an item in my FB feed from firms that I'm pretty sure are offering this strategy. I tell then what I think of them.

IMO, if every last dime I have goes to LTC, that's what it's there for (and DS, my only child, agrees). I'm also concerned that, as more and more people rely on Medicaid for their LTC (either because they genuinely have no assets or because they're locked away), the states are going to cut back on what they pay nursing homes and the places will be no better than warehouses. If I live to be 90 I want Wi-Fi, a library, regular dental care, an indoor pool and exercise classes. Medicaid will not foot the bill for that.

That's exactly what DW and I said to each other last night. We'd love to leave our kids some money, but not if it means we spend our last years in a less quality situation.

 

[Bestwifeever]

Just had a conversation with DS about the college account he set up for his little DDs and mentioned that although he and his sister might get a little $ when we pass away, it could easily go to nursing homes, and he said long term care is what our $ is for, not for an inheritance (we don’t really talk $ with the kids because we want them to plan for themselves, which they both do). I think he’d be appalled if we pulled medicaid shenanigans.

Not to mention the government will just figure out a way to get it anyway. I remember way way back before lookback was even a thing, hearing young upper middle class people discussing how to shelter their parents’ assets right and left into their own accounts so they wouldn’t have to pay for their nursing homes. Hope they ended up paying every nickel themselves.

 

[athena53]

Before we get too far off the original question...

Would shielding your assets in order to qualify for Medicaid result in less quality nursing home care?

Not necessarily, but you have to choose carefully and I suspect that the ones that take Medicaid will go downhill as states become more desperate to save money.

My Uncle has Alzheimer's and is in a nursing home now. I went with my Aunt to visit him last October. He's well taken care of- due partly, I'm sure, to her daily visits, but I also saw a lot of signs that they took care of everyone- seasonal decorations, a flag he'd received on Veterans Day, etc. They also have monthly group meetings with family members and she can review his meds at any time. Right now he's self-pay but he's in a "Medicaid bed" (he shares a room with another guy with a curtain between them) because they've almost spent down to the $120K or so that my Aunt can keep, at which point Medicaid kicks in. She says she lies awake at night worrying about how she'll be financially on the assets/income she's allowed to keep.

Anecdotal evidence, here and elsewhere, is that quality care such as this exists for Medicaid patients, but it's not plentiful and frequently there are waiting lists.

My understanding is that in order to get MediCARE patients in rehab (which pays much better but is for only a finite stay), nursing homes must have a certain % of Medicaid beds. Many times those Medicaid beds are taken up by people like my Uncle, who was able to self-pay for awhile. I suspect that if the trade-off between low reimbursements of Medicaid beds and higher payments for Medicare rehab becomes less favorable, some LTC facilities may refuse to accept either.

 

[audreyh1]

Right. As I was looking around the room, I could tell several people thought this was a good idea. I don't think they understand the "irrevocable" part of this scheme.

The parents had found a CCRC, had committed to it, and were facing a payment and availability deadline when the problem came up. Clearly they didn’t understand that they had already arranged their assets such that a buying into a CCRC was not an option for them. I wonder how many attendees get this - clearly some don’t.

 

[joeea]

Ethically, I have somewhat of a problem with people shielding (hiding?) assets to qualify for government benefits. I mean if you have the money, why have taxpayers pay for it? But, I can make the same argument when millionaires qualify for ACA subsidies.

When laws are complex, creative workarounds pay off. And advisers, accountants, and lawyers make money helping.

If your Medicaid eligibility is based on one's assets, then it only makes sense to manipulate assets if you goal is to qualify for Medicaid.

The same is true for ACA subsidies. If income is the only qualifier then those who can minimize income should do so.

If the tax laws are such that pass-through income is taxed at a lower rate than corporate income, it's not hard to predict what folks will do.

If retirement account rules permit converting to a Roth while paying a lower tax rate in order to avoid taxes when at a higher rate, it only makes sense to do so.

Using a trust to "protect" your assets from a potential lawsuit isn't much different from "hiding" your assets from the Medicaid look-back. In both cases, you "have the money" but have put it in a place so that others can't get to it.

I have no problem using whatever rules I have at my disposal to increase my wealth and pay fewer taxes legally. I would be foolish to do otherwise. If doing so seems unfair, the solution is simple - change the rules.

(Note that I have no intention of hiding assets for Medicaid. My wife and I both have Long Term Care insurance, and have set up our portfolios to meet all our needs in retirement. But I will still feel free to use whatever rules are available to me in order to maximize my portfolio and eventually my estate.)

 

[ChrisC]

Before we get too far off the original question...

Would shielding your assets in order to qualify for Medicaid result in less quality nursing home care?

It could, depending on where you live and available beds in a facility. Shielding your assets could mean that they are not available to pay for CCRC facilities, assisted living facilities, independent living care homes/facilities, or those skilled nursing facilities that don't accept Medicaid. By placing restrictions on the use of those assets to qualify for Medicaid, you are limiting your choices and relegated to Medicaid facilities for skilled nursing care, but what if you don't need skilled nursing care but would be a better fit for assisted living facilities (which Medicaid might not pay in many states) or what if the better skilled nursing facilities don't accept Medicaid patients or have a quota on Medicaid patients?

 

[pb4uski]

I'm not receptive to such an arrangement for a few reasons.

First, I am not so desparate to leave an inheritance to our kids that I would be willing to impose society with our long-term care costs.... it just doesn't seem right or fair to me.... I can pay my own way.. thank you very much. IMO, Medicaid is meant to be a backstop for those who cannot pay for their long-term care... not a program to be cleverly manipulated for personal financial gain for your heirs. I hope that regulators will find ways to circumvent these slick schemes.

Second, I believe that if we need long-term care that we can get better care if we have the means to pay. While we might get lucky and find ourselves in a nursing home with both private pay and Medicaid residents where treatment is equal, we might not... and I'm not willing to take the chance.

Third, I despise slick lawyers.

 

[Bogie]

Don't forget to consider the effect of taxes on the trust. The trust tax bracket is compressed such that the trust tax rate is max'd out at I think 37% for $12,000 or so of income. Since the person getting medicaid doesn't want to collect income, which would disqualify them from medicaid, the trust has to pay the income taxes. This is my understanding.

Trust Tax Rates Table

If taxable income is: ::::::::::::::::: The tax is:
-------------------------------------------------------------------------------
Not over $2,500 ::::::::::::::::::::::10% of the taxable income
Over $2,500 but not over $9,150 ::: $255 + 24% of the amount over $2,500
Over $9,151 but not over $12,500 :: $1,839 plus 35% of the excess over $9,150
Over $12,500 ::::::::::::::::::::::::: $3,011.50 plus 37% of the excess over $12,500

 

[Mr._Graybeard]

Why would you want to go through the Medicaid system to dictate your care? You and your family will have no say in the facility. I don't know what the amount is today, but a few years back the amount Colorado would pay was $800 per month. That doesn't sound like the kind of care I want. Find a new attorney.

+1. If I'm gonna go out under LTC, I don't want to waste away in some hellhole where I have to push the call button for hours just to get a bedpan.

 

[athena53]

+1. If I'm gonna go out under LTC, I don't want to waste away in some hellhole where I have to push the call button for hours just to get a bedpan.

I suspect the understaffed places rely on adult diapers, to be changed on THEIR schedule. (Shudder.)

 

[audreyh1]

Using a trust to "protect" your assets from a potential lawsuit isn't much different from "hiding" your assets from the Medicaid look-back. In both cases, you "have the money" but have put it in a place so that others can't get to it.

Actually no, they didn’t have the money. It was in an irrevocable trust and was no longer theirs.

 

[ChrisC]

+1. If I'm gonna go out under LTC, I don't want to waste away in some hellhole where I have to push the call button for hours just to get a bedpan.

Except for highly expensive and exclusive private pay facilities, in many locations skilled nursing facilities accept both private pay and Medicaid recipients so there is little, if any, difference in patient care. In places that we have looked for family members in NYC, Northern Virginia, and North Carolina, the only difference in such facilities for patient care between private pay and Medicaid recipents is whether you have a private room or shared room.

I think you're in for a rude awakening when you start looking at skilled nursing facilities. Even the better rated ones I've seen (that provide a priority to private pay residents) don't provide the optimal care you'd want for loved ones or yourself.

If I do need LTC, we will be using my LTCi for home care and if that runs out for 5 years, we have enough resources to take us further. The big uncertainty is LTC that can only be provided in a skilled nursing facility.

 

[PatrickA5]

Find a new attorney.

In all fairness to the lawyer putting on the workshop, he spent maybe 5 minutes of 90 minutes going over this. And, I imagine that just about every other estate lawyer would offer something similar since some people want this. Obviously, if you want to make money you offer what people want.

Right now, I'm struggling with what we want with a Trust and whether we need one at all.

 

[joeea]

Actually no, they didn’t have the money. It was in an irrevocable trust and was no longer theirs.

That's why I put the phrase in quotes. They manipulated their assets to take advantage of the rules.

Just like my wife and I "don't have much income", thus granting us ACA subsidies (thank you everyone for that).

You can take whatever the rules permit.