A Medicaid Asset Protection Trust is created by an individual who desires to protect assets in case in the future they might require nursing home services. The creator of the trust is actually the party who is placing assets into the trust but once the trust is created and assets are conveyed to the trust the creator is no longer the trustee or the technical beneficiary of the trust. This type of trust is an irrevocable trust which means once it is signed it cannot be revoked by the party creating the trust. The main purpose of this trust is to protect assets that are placed into the trust in the event that the trust creator should require a nursing home facility in the future. This type of trust must be created five years prior to an application being made for Medicaid benefits in a long term care facility. This is because when applying for Medicaid benefits for a skilled nursing home there is a lookback of five years from the date of application to make sure no gifting has occurred. In signing one of these trusts a person will create a new legal entity which is the trust itself. The person who creates this type of trust cannot be the trustee nor can this person be named as a legal beneficiary of this trust. However, in the event of an emergency the trustee can pay over trust assets to the trust beneficiaries that you designate in the trust who are often children of the trust creator. If you needed money out of the trust during the lifetime of the trust creator a distribution could take place to one of the named beneficiaries under the trust. Creating a trust such as this is one of the primary ways to do preplanning for an estate in order for assets to be protected in the event that a person might be placed into a long term care facility in the future. These trusts are used nationally and are excellent vehicles to protect assets. When a trust like this is created a person does not typically place all of their assets into the trust because it is necessary to keep some assets in an individual’s name for personal use. Perhaps one of the most difficult decisions a client will make when creating these types of trusts is what particular assets should go into the trust and what assets should remain in the client’s name. Typically real estate is what is placed into the trust by most clients. Sometimes even a portion of some retirement accounts are liquidated and placed in the trust. Once five years has passed since the contribution to the trust, the assets are protected under the current Medicaid rules from becoming countable resources in the event that a person needs to apply for Medicaid. There are advantages to this type of trust in lieu of putting assets directly into your children’s names. If you put an asset into the trust instead of giving directly to your child, you no longer have to be concerned with your child dying before you, your child getting divorced, your child having an event in life that requires long term care for the child prior to you, or your child being sued. The trust is a safer way to protect assets and allows you to determine how your assets are distributed as it relates to who is alive at the time of your death. The distribution of the trust is very similar to the language in a Will.
These types of trusts are to be distinguished from Living Revocable Trusts which are somewhat popular with some attorneys who do estate planning. Revocable Trusts are created because people want to avoid probate and for confidentiality. Revocable Trusts were originally created for persons who lived in states that had extremely high probate fees. Over times it has become a practice nationwide to include these in estate planning documents. However, items placed into a revocable trust are 100% available to you in the event that you should go into a long term care facility and are not protected.