This article is part of our series on how to set up trusts to protect assets in Oklahoma. This is a popular topic that we are asked about a lot. Our last post addressed asset protection for the elderly. Today’s blog post will focus on whether a trust can protect assets from Medicaid.
Not all trusts protect assets from Medicaid
The first thing to understand is that not all trusts are created for the purpose of asset protection. The most common type of trust is the revocable living trust. We consider the living trust to be the foundation of every estate plan. Pretty much anyone that owns real estate will benefit from having a living trust. But living trusts are not designed to for asset protection.
Living trusts help you manage your assets right away. They also ensure a plan is in place if you become unable to do so. Then, when you die, your spouse and other family members can avoid going to court to manage your assets. This means that you will never have to make your bank accounts, property, and other assets public. A living trust keeps the details of your family’s assets private.
There are many benefits to having a living trust, but protecting assets from Medicaid is not one of them. In order to do that, we need a different type of trust.
How to set up a trust to protect assets from Medicaid
We can set up a trust for you that will protect your assets from Medicaid. However, there are certain rules we have to follow in order to make it work.
The first rule is that we have to make the trust irrevocable. That means that after we set it up, we cannot undo the trust. Your assets will be permanently inside this trust. If you are uncomfortable with that aspect, this type of trust is not for you.
Next, we must set up the trust at least five years before applying for Medicaid. If you need Medicaid coverage immediately, we will not be able to protect your assets. But if you do not need Medicaid for at least five years, then we can definitely protect your assets.
Finally, we must delegate authority and control of the assets to a trustee. Choose someone you trust. They should follow the trust’s terms and act responsibly. Their goal must be the family’s best interest.
The advantages of a Medicaid Asset Protection Trust
Some people might ask why not just give away your assets to your children. After all, isn’t that the same thing as giving away control? The answer is no.
When you create a Medicaid Asset Protection Trust, you are giving up control over legal title. But you are not giving up all control. You can retain the right to change your beneficiaries. You can remove your child or grandchild from the trust if you think they don’t deserve their inheritance.
This right to remove beneficiaries can also serve as an incentive to your family in a number of ways. Fear of losing their inheritance can make children and grandchildren act in specific ways. This mechanism acts as a counterbalance to the control that you give up to the trustee.
A key benefit of using a Medicaid Asset Protection Trust is that it provides a step-up in basis for the asset. This accounting trick saves your children from paying additional capital gains taxes. Giving the asset away, even through a gift trust, does not preserve this tax advantage.
You can keep the right to live in your home. It seems like an impossible feat. On the one hand, you have a right to live there even though you gave up the right to control legal title. On the other hand, Medicaid cannot count your home as an asset even though you continue to live there.
Call our Oklahoma City office to set up a trust to protect your assets from Medicaid
Your trust will pass your assets to your beneficiaries, just like a regular living trust. But there are some clear differences. You are giving up control of the asset to trustee now instead of at your death. You are passing your property to your heirs, but you do retain the right to live in your home.
These are tricky issues that need a caring lawyer to help with these choices. Many of these decisions are not easy to make. We can help you by explaining the advantages and disadvantage along the way.
To learn more, call our office at 405-607-7799 or send us an email.