Can a gift trust to your children protect you from qualifying for Medicaid consideration?

If you’re considering applying for Medicaid to pay for nursing home care, certain types of trusts can be helpful. But certain rules must be carefully followed for this to be successful.

Any trust used for Medicaid advance planning must be “irrevocable,” which means that you cannot retain any power to change or revoke the trust after you sign it. Also, the terms of the trust must not allow the trustee to distribute the assets in the trust back to you for any reason. Such a power in the trustee would cause the trust property to be countable against you when you apply for Medicaid, defeating the purpose of the trust. You can, however, retain the right to the income from this trust. And upon your death, the remaining trust assets pass to your children.

The second crucial rule has to do with timing. Any transfer into such a trust is considered by Medicaid as a gift. And under Medicaid rules, if you apply for Medicaid within five years of the date you transfer assets into the trust, there will be a certain number of months of disqualification (a penalty period) during   which Medicaid will not pay for nursing home care..

If you have not yet reached age 65 but need nursing home care right now, another type of irrevocable trust may allow you to qualify for Medicaid immediately, with no five-year waiting period after you fund this trust and no penalty upon applying for Medicaid. However, upon your death, the state will have to be repaid every dollar it paid out on your behalf for your nursing home care. Lawyers call this type of trust a “(d)(4)(A)” trust, after the federal statute that authorizes this technique.