Ideally, every client of Berwitz & DiTata LLP would have the foresight to plan now for the possibility that they will require care in the future. Most people believe that the only way to accomplish this is through long-term care insurance. Not everyone qualifies and those who do are often discouraged by the cost. Fortunately, insurance is not the only way to pay for a nursing home or home care. Many people expect to access the Medicaid system when and if they later require long-term care. Medicaid eligibility in New York requires that the applicant have limited assets. Our clients often ask whether this means they will be required to spend all of their money before qualifying for Medicaid.


A Medicaid qualifying, asset-protection trust (“Medicaid Trust”) can shield assets from Medicaid and
allow you to preserve them to pass on to your family, provided that the planning is done in advance of the need for care. They are not suitable for persons who need Medicaid immediately or within a short period of time because there is a financial disclosure period, 60 months for Medicaid nursing home applicants and, beginning on October 1, 2020, 30 months for home care applications. The transfer of assets to a Medicaid Trust will create a period of ineligibility based upon the value of the property transferred.


There are many different types of trusts and most are not Medicaid compliant. Revocable living trusts, for instance, do not afford Medicaid protection because they allow you to use the trust assets. Assets in this type of trust wouldhave to be “spent down” before you qualify for Medicaid benefits.


A Medicaid Trust must be irrevocable meaning that, under most circumstances, once assets have been transferred to the trust, they cannot be transferred back. But once the trust owns assets, Medicaid cannot count them as resources that disqualify you from receiving benefits and Medicaid cannot recover those assets after your death to reimburse itself for the costs of your care. Once you pass away, the trustee will distribute the assets to your beneficiaries in accordance with your wishes.


Protecting assets in a Medicaid Trust is often preferable to transferring ownership directly to a child or other beneficiary. First, you maintain some control over the asset. Even though you are not the trustee or manager of the trust, you select your trustee and can retain the right to change trustees and even beneficiaries during your lifetime. If the trust assets are income producing, i.e. rent, interest or dividends, you can collect the income. The principal of the trust is protected but you can receive all of the income produced by the principal. Certainly, this is not true if, instead, you transfer assets directly to a beneficiary. But many other circumstances can then threaten the assets. Your beneficiary may get divorced or incur debt. With a Medicaid Trust, embittered spouses or aggressive creditors of your beneficiaries cannot deplete its value.


A number of different types of assets can be put into a Medicaid Trust, including your home. When you transfer your home to a Medicaid Trust you continue to live there. Not surprisingly, you continue to be responsible for the expenses but this also means that, if you qualify for exemptions on your real estate taxes, such as a STAR exemption, you continue to be eligible. Moreover, when you pass away, your beneficiaries will receive a step-up in basis, thereby reducing or eliminating capital gains tax. In fact, you can even direct the sale of your and the purchase of another in its place! Other assets that are customarily transferred to Medicaid Trusts are real estate other than one’s home, investment and savings accounts, stocks and bonds, mutual funds, and CDs. Transferring retirement accounts (401Ks and IRAs) is not recommended due to the unfavorable tax consequences.


It is imperative that a Medicaid Trust be correctly drafted in order to ensure that the assets transferred to it will be exempt from Medicaid’s reach and that they will be protected and preserved for distribution to your loved ones in accordance with your wishes. If you have questions about the benefits of a Medicaid Trust in your estate plan, please call Berwitz & DiTata LLP.