In honor of the start of Hanukkah, we’ve decided to dedicate eight entries over eight days to the most common myths about Medicaid and Medicaid Planning.
Myth #1. “I have a “living trust” so my assets are protected.”
This, I think, is one of if not the biggest myth in Medicaid planning. A “living trust” or more appropriately called a revocable trust does NOT protect your assets in anyway from Medicaid countability. This is because the trust is what we call revocable. That means that the grantor, which is you, has the ability to pull all of the assets out of the trust at any time. You are also, most likely, also the trustee of that trust. That combined with the fact that the trust is tied to your social security number, makes it countable all day to Medicaid. I cannot tell you the number of financial planners and clients who buy into this myth. It’s true, a revocable trust is a fantastic estate planning tool to protect your assets from creditors at the time of your passing, but it provides no protection from Medicaid, or creditors for that matter, while you are alive. It is useless against the long arm of Medicaid.
So, what to do?
We highly recommend what is called a “MAP” Trust or a Medicaid Asset Protection Trust. These are IRREVOCABLE trusts, meaning that once your money is in, you personally cannot take it out. You will then name someone that your trust, a financial planner, attorney, or family member, to be the trustee. This person will have absolutely discretion in paying out the trust contents, therefore protecting the assets from being counted by Medicaid. You can request whatever money you want from the trustee, but the trustee is not In the past, we use to recommend a transfer to an adult outright. This is no longer recommended due to the risk of the new owner dealing with a personal lawsuit or bankruptcy. With a MAP trust, the trust owns the assets, not you and not your trustee. Speaking with one of Mahaffey & Associates Estate Planning and Elder Law Attorneys to learn more about the plan.
When should I do this?
Well that brings us to tomorrows topic, the “look back period”.