Non-attorneys often seem to have the idea that putting assets into “a trust” will shelter assets from being lost if they or their spouse, need to go into a nursing home on Medicaid. Generally, this is not the case. However, it takes a bit of explanation to clarify why this is a wrong idea.
Most trusts created for estate planning purposes are revocable trusts, meaning the trust provisions can be amended or even completely revoked by the settlor who created them, and the settlor retains the ability during his or her lifetime to move assets into and out of the trust. Assets in a revocable trust are available to the settlor, and are therefore “countable” assets for purposes of Medicaid eligibility.
Certainly a trust can be drafted as an irrevocable trust, with provisions that make the trust assets unavailable to the settlor. However, after thinking about it, most persons choose not to completely give away or place a sizable portion of their money into an irrevocable trust based on the mere possibility they might need nursing home care at some future date. That is, unless they are truly ready and willing to part with ownership and control of the assets. After all, they may need the money themselves, in the future. Also, the Medicaid 60-month look-back period requires any gifting of assets, or divestment into an irrevocable trust, must take place at least five years before the person enters a nursing home or else the individual will be determined ineligible for Medicaid assistance to pay for their long-term care.
However, there is a circumstance where a revocable trust can be used to help a married couple preserve additional assets if one of them may need future nursing home care. This is known as the “home-in-and-out” of a revocable trust. It is useful for married persons having an estate with a countable asset value (in 2015) somewhere between $23,844 and $238,440. Timing is also an important factor in using this technique.
If a married person requires care in a nursing home and applies for Medicaid, the assets of both spouses must be fully disclosed on an Asset Declaration. The nursing home spouse is asset eligible for Medicaid assistance only if he/she has less than $2,000 of countable assets. But the community spouse still living at home is entitled to keep a protected spousal amount (PSA) of greater value. The PSA amount, in 2015, is the greater of either (a) $23,844 or (b) one-half of the couple’s countable assets from the Asset Declaration, but not exceeding $119,220.
A home titled in the name of either spouse, or in the name of both spouses, is an exempt (or non-countable) asset for Medicaid eligibility purposes. However, if the home is transferred into a living trust it becomes a countable asset under the Medicaid rules. It may be beneficial for a married couple to transfer their home into a living trust because doing so increases the “pot” of countable assets. Doing this, in turn, may increase the PSA by half the value of the equity in the home, allowing the spouse still living at home to keep more of the couple’s savings. It is essential that the transfer of the home into a revocable trust take place before the “snapshot date” — i.e. the first date the nursing home spouse is continuously in the hospital and/or nursing home for a period of 30 days or longer. The reason is that the community spouse’s PSA is calculated on the basis of the couple’s countable asset value as of the snapshot date.
So, for example, placing a home with market value of $100,000 into a revocable trust before the snapshot date may allow a community spouse to retain an additional $50,000 in her/his PSA, so long as one-half of the couple’s total countable assets does not exceed the (2015) ceiling amount of $119,220.
When using this technique, the home must not only be in the trust before the snap-shot date, but must also be moved back out of the trust—and ownership placed back in the name of the community spouse—before the Medicaid application is submitted. Hence the name, “home-in-and-out” as a Medicaid planning technique.
Prior to applying for Medicaid, the nursing home spouse’s name will also have to be removed from all other countable assets in excess of $2,000, which are transferred into the community spouse’s name alone. This can be done, because transferring ownership of an asset from one spouse’s name to the other spouse is permitted, and is not treated as an improper divestment which will cause a penalty period of ineligibility for Medicaid assistance.