Trusts and Medicaid Eligibility and Recovery . Who is eligible for Medicaid? II. Last Wills and...

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Transcript of Trusts and Medicaid Eligibility and Recovery . Who is eligible for Medicaid? II. Last Wills and...

  • Drafting Wills and Trusts with Medicaid in Mind

    Amelia Crotwell, CELAElder Law of East Tennessee

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

    Certified by the National Elder Law Foundation

  • This presentation is available at

  • 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 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