To read more about how Irrevocable Medicaid Five Year Trust works, please click the article link. This post is comprised of some of the most frequently asked questions I get about Medicaid Asset Protection Trusts in Florida.

Why Can't I just use my Revocable Trust?

Revocable Trusts play an important role in estate planning. However, they have no role in Medicaid planning. Assets in a revocable trust, because the grantor always retains the ability to revoke and therefore access the assets placed into the trust, are counted as if they were in the name of the grantor individually.

Why Can't the Grantor or Their Spouse Request a Distribution to Themselves if They Need Money?

Remember that the grantor can, in fact, continue to receive any income derived from the trust. However, if they could directly access the assets, then the assets would be deemed available to the medicaid applicant, and therefore countable.

Can the Grantor Swap Out Trustees?

Yes. Our Florida Medicaid Trusts give the grantor the right to fire and replace trustees at any time.

Can the Grantor Change Beneficiaries?

Yes. the Five Year Irrevocable Trust gives the grantor the right to amend, add, remove beneficiaries at any time.

Are Medicaid Five Year Trusts a Scam?

Interestingly, I watched a YouTube video of an estate planning attorney who prefaced his video by stating that he did not practice elder law or engage in medicaid planning then go on to say that the Irrevocable Medicaid Trust "doesn't work," "isn't a good idea," and that "using such trusts is fraudulent." This is absolutely, 100% false.

I would agree with the sentiment that Medicaid Asset Protection Trusts are not the right device for everyone and would even agree that some elder care lawyers suggest the trust under circumstances where other strategies would be more appropriate. But, Medicaid Asset Protection Trusts are 100% legal and when used correctly, under the guidance of an experienced elder law attorney who focuses on Medicaid planning, an absolute life saver.

I should mention that nothing in Medicaid planning is hidden from Medicaid. In fact, when I file a nursing home Medicaid or home care / ALF Florida Medicaid application on my client's behalf, I tell Medicaid exactly what is is that my client has done with their assets and then why federal and Florida state law requires that my client be approved for government benefits.

What Happens to the Trust Assets After the Grantor Passes Away?

The answer is, whatever you directed the trustee to do. Generally the assets would pass to your heirs. An additional benefit is that this happens outside of probate. You certainly have the option of having your Florida elder law attorney draft the trust to continue for your children's lives to provide them with creditor and divorce protection.

Also, and very importantly, Medicaid has no right to engage in estate recovery against such a trust.

Should I put all of my assets inside the medicaid asset protection trust?

No. Some assets should remain in the eventual medicaid applicant's name so they can maintain financial independence. Consider placing assets that remain outside of the irrevocable five year trust, in a revocable trust, to avoid probate. Your elder law attorney will look at all of your assets and be able to provide guidance as to which assets should be placed inside the irrevocable trust and which should remain outside of the trust.

For example, if there is a spouse who will not need Medicaid long-term care benefits, they (as of 2019) can keep $126,400.00 in their name.

What are some examples of assets that you recommend remaining outside of the Medicaid five year trust?

  1. The homestead. Often, the homestead is going to be an excluded resource anyway. For a homestead, I may suggest a lady bird deed or a revocable trust because its not going to influence medicaid eligibility either way, but utilizing a lady bird deed or revocable living trust will still allow that property to avoid a probate proceeding.
  2. IRAs and 401(k)s. Similarly, these assets, if paying in required minimum distributions are not going to be counted as assets when Florida Medicaid is determining eligibility. Furthermore, these qualified retirement accounts are usually required to remain in the individual's name. From an estate planning perspective, because the account owner can name pay-on-death beneficiaries, they will not require a probate.
  3. Some bank accounts with limited funds. Especially because the five year medicaid trust, by its very nature, involves planning in advance (i.e. no immediately foreseeable need for long-term care services), we want the eventual medical applicant to retain their own financial independence and purchasing power and not have to rely on a trustee until the need actually arises. Again, if one spouse is less likely to require Medicaid long-term care in the future, we can keep in mind that he/or she is allowed to retain $126,400.00 in their own name, so we might keep at least that amount outside of the irrevocable five year trust.

What Are The Medicaid Asset Protection Trust Drawbacks?

Loss of control. Irrevocable Five Year Trusts, due to the very nature of the goal we are trying to achieve (i.e. medicaid long-term care eligibility five years in the future) involves the grantor (and grantor's spouse) losing the ability to directly control and directly access a portion of their own assets. While we try to build in safeguards, such as giving the grantor the ability to change trustees and beneficiaries,  the fact remains that the person seeking Medicaid eligibility, loses control. This can be a disconcerting feeling, especially if the grantor does not have any children or close family member that they can trust.

Higher taxes. The Medicaid asset protection trust is its own legal entity, with its own separate tax ID number. The Irrevocable five year trust files its own taxes every year. While the IRS does not get a piece of the principal within the trust (a common misconception), any investment or rental income earned by assets within the irrevocable trust throughout the year, are very quickly taxed at the highest federal income tax rate.  

Who Should Avoid Five Year Medicaid Trusts?  

The fact is that not everyone is going to be the right fit for a Five Year Medicaid Trust.  

Consider Long Term Care Insurance First. First of all, if you are young and healthy enough, I'll be the first one to tell you to look into purchasing long-term care insurance. There are also life insurance hybrids with LTC riders that let you draw a portion of the policy's death benefit (these tend to be more affordable that traditional long-term care policies). If you happen to be a long-term care insurance policy holder and your policy has issued long term care insurance claim denial, we can also help.

You Need Long Term Care Benefits Now, or Expect to Need Long-Term Care in the Next Few Years.

The bulk of my clients come to me because they are already receiving long-term care. It could be someone starting with a few hours a day of home-health care who can't afford to pay for needed additional hours; or someone whose condition has worsened, necessitating entrance into an assisted living facility. Or perhaps its a medical crisis, such as a heart attack or stroke that requires an extended rehab or skilled nursing home stay. These are not the clients that need an five year asset protection trust, because they need Medicaid's help as soon as possible. For these clients, we utilize other strategies to qualify them for Medicaid's home health care, ALF or nursing home benefits.