Remember These Rules to Protect Your Assets

You may have created a trust to protect your assets if you need nursing home care or, you may advise clients who have done this.  I am going to call this type of trust a Medicaid Asset Protection Trust.

As you probably remember, five years must pass before the assets in this trust are protected.  This rule is the most important, but there are others to keep in mind for the Medicaid Asset Protection Trust to make sure the assets you are gifted are, in fact, protected.

  1. Title Assets Correctly. Creating and assigning the Medicaid Asset Protection Trust is important. However, assets such as bank accounts, real estate, investment accounts have to be retitled in the Trust for the five-year look back period to begin. Also, you need to be very careful that any other trust you have (such as a revocable living trust) is not the owner of this account. These types of trusts do not have the same protection that a Medicaid Asset Protection Trust does.  Also, if you change institutions (such as having a CD mature and then you move to a different bank), it is very important to set up the new account in the Medicaid Asset Protection Trust.  If you have rental real estate in this trust, you need to make sure that the bank accounts that handle the rent and any related expenses are in the Medicaid Asset Protection Trust as well.
  2. Create a Paper Trail. It is very important to have a paper trail with the Medicaid Asset Protection Trust.  You will first have this when you move an account in this trust to show when the five-year period begins.  If you are going to get assets back from the Medicaid Asset protection Trust, it is also extremely important to have paperwork that shows how this is done and to follow a particular process. The trustee of the trust (typically a child) will need to set up a separate account to do this. The funds from the trust will be moved to this personal account of the trustee.  The child will then be able to gift those assets back to you or pay for an expense directly.  You should keep records of these transactions so that if there is ever a question, you can show how the process was followed. Finally, is it important to not make frequent and regular transfers from this account.  This could give a Medicaid caseworker an argument that the Medicaid Asset Protection Trust is actually your asset and would therefore not be protected.
  3. Invest Conservatively. If you are transferring an investment account to the Medicaid Asset Protection, you should be very cautious about how it’s invested during the five-year look back period. There is some risk that if the account declines in value and you need care within this time period that the divestment will not be eliminated if the assets are given back to you.  To avoid this risk, you should invest in assets that have a minimal risk of decline during the five-year period.

If you have any questions on how to maintain a Medicaid Asset Protection Trust, feel free to contact me at phmulder@cunninghamdalman.com.  Thanks.

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