A Medicaid professional consultant helping an elderly woman to protect her assets and money from the nursing home spend down.

Medicaid Trust

The Medicaid Trust (i.e. Medicaid Annuity Trust) is an effective asset protection strategy in Medicaid planning

The Medicaid Trust (i.e. Medicaid Annuity Trust) is one alternative that many seniors choose over a Medicaid Annuity. It is a similar device because the assets that are used to fund the trust will not be considered a divestment. The assets will also be used to pay back the Grantor’s spouse. This type of trust The Medicaid Annuity Trust is actuarially sound because all of the income and corpus will later be paid to the spouse within their lifetime.

Using Medicaid Annuity Trust to Avoid Tax Problems

Many seniors will use these trusts when any sale of assets would put the owner in a situation that would cause tax problems. An example of this would be a couple who owns stock that is highly appreciated. This would cause them to have excess resources and not be eligible for Medicaid. In this case, they will only have two options to protect their assets should one of them need care in a nursing home. The first option would be to liquidate the assets and place all of the proceeds in an annuity. The second option is to transfer the asset ownership into a Medicaid Annuity Trust. This would help to avoid liquidation.

The Medicaid Annuity Trust must still pay income to the owner based on the life expectancy of that person. The act of putting the stock into an annuity trust will only delay the sale of the stock. This move would avoid having to sell the stock and will thus allow for a short delay in having to pay a capital gains tax. In some states, when the spouse in the nursing home dies, the trust will be busted and the remaining corpus will then be transferred back to the community spouse with no need for liquidation.

Medicaid Trust Not a Revocable Trust but an Irrevocable Trust

Many people who are planning for Medicaid will often confuse this type of trust with a revocable living trust. It is actually an irrevocable trust. This is the type of trust that is typically provided for the avoidance of probate after the spouse in the nursing home passes away. It can be a very effective tool in asset protection. It also allows for easy management of assets while the spouse is incapacitated. This type of trust is considered to be one of the safest ways to plan for Medicaid while protecting hard earned assets. Without proper planning and asset protection, many seniors will be forced to spend their savings and deplete all of their assets in order to qualify for Medicaid. The Medicaid Trust can help individuals avoid having to do this.