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Estate Planning: Revokable Trusts and Qualifying for Medicaid

On Behalf of | May 21, 2014 | Estate Planning

Estate planning and medicaid.  Why Revocable Trusts won’t help you qualify for Medicaid.

John and Jane Doe executed a revocable trust in January 2004. Both of them were sixty-seven years old and in pretty decent health at the time. They figured, if they moved their money into a trust now, they would escape the five-year ‘look back’ period and, when the time came for one of them to go into a nursing home, they would qualify for Medicaid. Their goal was not to exhaust their life savings on nursing home care. They didn’t have much, but they wanted to make sure, if one of them did need long term care, the other would be able to live comfortably at home.

Fast forward ten years to March 2014. John is suffering from severe Parkinson’s disease and Jane can no longer care for him at home. John is admitted into a local skilled nursing facility where, according to the doctors, he will likely remain. Jane meets with the admissions officer of the nursing home and applies for Medicaid. She isn’t worried – after all, they put all of their money into a revocable trust ten years ago, John was sure to qualify. A few weeks later, Jane is shocked to find that the Medicaid application is rejected. She is told that they have too much money in their trust! But that trust wasn’t supposed to count! What happened?!

The funds held in a revocable trust will be counted as a resource for purposes of Pennsylvania Medicaid. Also known as “living trusts”, these legal documents can be changed and completely terminated whenever their creator wants. According to the Department of Public Welfare (“DPW”), the entity that administers Medicaid, any money that an applicant, or their spouse, can access or control is an available asset. This means that if the applicant, or their husband or wife, can take money out and spend it or direct someone else to spend the money, it is available to them.

How could John and Jane have avoided this problem? If the trust they created ten years ago had been irrevocable, the money would have been out of their reach and thus not count against them when applying for benefits. The primary difference between this trust and the one they had is that this one cannot be changed – they can’t take the money out, they can’t change how it’s spent and they can’t terminate the trust. The money is put into another person’s hands for management and safe keeping. Since the money in an irrevocable trust is out of their reach and control, it would not count as an asset for purposes of Medicaid benefits.

Revocable trusts are an excellent estate planning mechanism for the right clients. However, if you have one and are concerned about the costs of long term care and/or Medicaid, it may be time to consider revising your estate plan.  To discuss whether a revocable trust is right for you, contact McMorrow Law LLC at 724-940-0100 to speak with a Pennsylvania estate planning attorney today.