Drafting Wills and Trusts with Medicaid in Mind

Amelia Crotwell, CELAElder Law of East Tennessee

903 N. Hall of Fame Dr.Knoxivlle, TN 37917

www.elderlawetn.com

Certified by the National Elder Law Foundation

This presentation is available at https://www.elderlawetn.com/resources/

Planning for Medicaid using Wills and TrustsI. Who is eligible for Medicaid?II. Last Wills and MedicaidIII. Irrevocable Trusts and MedicaidIV. Revocable Trusts and MedicaidV. Special Needs Trusts

I. Who is eligible for Medicaid?

Categorically eligible: over age 65, blind, have disability and meet income and resource limits

SSI vs. 209(b) states

Technical, medical, and financial eligibility Technical: US citizen or qualified noncitizen; variations by

state Medical:

65+ years old, meet SSA definition of disability or blindness; state may impose other restrictions

Physicians or certified assessors documentation of needed level of care/assistance with ADLs

Financial: income and asset tests

Financial eligibility single applicants Income

Monthly gross income not exceeding 300% of SSI benefit rate 2017: 300 x $735 = $2,205

Options such as QIT for income exceeding limit (varies state to state); may include payback provisions

Assets: countable vs. exempt Countable asset limit: $2,000 (single) or $3,000 (married) Exempt assets:

Primary residence & surrounding land $560,000 (2017) Household goods & personal property Vehicle Burial spaces for immediate family and burial funds $1,500 per spouse Life insurance with combined face value $1,500

Married vs. single applicants: income

Income of community spouse (CS) not considered available to institutionalized spouse (IS)

ISs income may be available to CS Income-first Rule: CS may keep enough to live on

Minimum Monthly Maintenance Needs Allowance (MMMNA -$2,002.50 in 2016)

Income shifted to CS before excess assets permitted Following death of IS, CS may have less income/fewer assets

Married applicants: assets

Countable assets of both spouses considered Unavailable resources not considered Retirement accounts Community Spouse Resource Allowance (CSRA)

2017: $23,844 minimum, $120,900 maximum TN: community spouse may keep of countable assets; no more

than $120,900 Resource Assessment: snapshot of resources on first day

one spouse is institutionalized for at least 30 days

II. Last Wills and Medicaid

Vehicle to plan for Medicaid and special needs beneficiaries Testamentary trust appropriate except:

Self-settled SNTs Sole benefit trusts Asset protection trusts created 5+ years before anticipated

Medicaid application filing date Why use them? Who has all the assets?

Testamentary trusts Spouses: 42 U.S.C. 1396p says a person may leave

assets to spouse only via trust under LWT Each spouse should create SNT within LWT maximum flexibility Elective share Contingent vs. forced SNT Review beneficiary designations No payback provision required Avoid limiting spouses share of marital estate to elective share Muniment of Title and probate

Non-spouses: either forced or contingent; no payback provision

III. Irrevocable Trusts and Medicaid

Strategy for pre-crisis planning or crisis planning for person with significant assets whose care needs will extend beyond five years

Leaving a legacy protected from liability, divorce, or catastrophe Protecting family farm Economic security for CS Obtaining Medicaid benefits Avoiding probate Alternative for people who cant get LTC insurance

Countable asset if payment could be made to or for benefit of person applying for benefits

Funding date and five-year lookback

Funding date: NOT the date of trust agreement execution Date the last dollar/asset is placed in trust Begins five-year waiting period for Medicaid

Lookback period Any transfers or gifts for less than fair market value considered

countable Countable transactions used to determine penalty period (time

from date of application during which no benefits can flow) Penalty divisor 5472

Asset protection trust requirements Irrevocable Trustmaker trustee Trustmaker principal beneficiary Trustmaker must not have power to borrow from trust assets Trustmaker can be income beneficiary

Asset protection trust tips Trustmaker may retain interest in income of trust Trustmaker may continue to live in trust residence Qualify trust as grantor trust for tax purposes Trustmaker should retain testamentary limited power of

appointment Trust protector/advisor and/or decanting provisions can help

solve problems Contingent SNT is best practice Include spendthrift clause

Asset protection trust considerations

Tax advantages Grantor trust status: trust income taxed to Trustmaker Deferred gains on annuities not recognized as gains (use SSN) Avoid capital gains on sale of primary residence under IRC 121

Trustmaker has ability to control distribution of assets after death but gives up control over assets during life

Long-term protection of family assets Divorce, bankruptcy, etc.

IV. Revocable Trusts and Medicaid

Estate planning tool for person not seeking asset protection and who wants to maintain control of assets during life

Asset management during Trustmakers life Probate avoidance after Trustmakers death

Assets in trust subject to Medicaid eligibility rules (countable)

Primary residence may be considered exempt (varies by state)

Revocable trust with pour over to LWT

Strategy for healthy couple who dont want irrevocable trust Assets pour over to probate estate of first spouse to die Used to fund SNT for surviving spouse SNT contained within last will of decedent No asset protection while both spouses are living, but asset

protection after first death with no lookback In TN, assets in revocable trust countable and available to

beneficiary Distributions characterized as income or transfers of assets

Revocable trust considerations

Caution: funding trust with exempt assets may make them countable

Assets in trust may be subject to estate recovery

V. Special Needs Trusts

Third party First party d4A (under age 65) First party d4C (any age) pooled trust Sole benefit

Third party SNT

Created by third party with assets of third party Benefits person of any age with disability (as defined by

SSA) No payback provision on death of beneficiary or liens on

corpus of trust Revocable grantor trust or irrevocable non-grantor trust Beneficiary must not have right to compel distribution Consider for all estate plans where beneficiary has or may

develop a disability

First party d4A trust

Created for person with disability under age 65 using his or her own assets

Created by parent, grandparent, conservator, court, or beneficiary with disability

Used to handle large sum of money (inheritance, personal injury award) to prevent loss of benefits

Only one beneficiary Limited trust additions after age 65 in TN Payback provision

First party d4C trust (pooled trust) Pooled trust may be an option depending on state rules re:

age of Trustmaker Avoids loss of Medicaid eligibility for person with disability Payback provision

Appropriate for person with disability of any age (TN) Established and managed by non-profit; separate account

for each beneficiary Person with disability or parent, grandparent, conservator,

or court may establish trust account Payback provision

Sole benefit trust Hybrid of third party SNT and d4A SNT Benefits both Trustmaker and beneficiary with special

needs Trustmaker wants to qualify for Medicaid immediately but is over-

resourced Trustmakers child, grandchild, spouse under age 65, or other

person has a disability Trustmakers excess resource gifted to trust exempt from

five-year lookback Payback provision on death of beneficiary OR equal

payments from trust during beneficiarys expected lifetime

Drafting Wills and Trusts with Medicaid in MindThis presentation is available at https://www.elderlawetn.com/resources/Planning for Medicaid using Wills and TrustsI. Who is eligible for Medicaid?Technical, medical, and financial eligibilityFinancial eligibility single applicantsMarried vs. single applicants: incomeMarried applicants: assetsII. Last Wills and MedicaidTestamentary trustsIII. Irrevocable Trusts and MedicaidFunding date and five-year lookbackAsset protection trust requirementsAsset protection trust tipsAsset protection trust considerationsIV. Revocable Trusts and MedicaidRevocable trust with pour over to LWTRevocable trust considerationsV. Special Needs TrustsThird party SNTFirst party d4A trustFirst party d4C trust (pooled trust)Sole benefit trust