Can I Take Back Assets in a Medicaid Trust? www.FrankKraft.com 1

There are many different facets to consider when you are engaged in your estate planning efforts. Transferring assets is not always as simple as an exercise in pie slicing. You should carefully consider the impact that a direct inheritance can have on each of your loved ones. If you act in a discerning manner, you can provide for each person that you love in the optimal fashion. With this in mind, we will look at the value of special needs trusts in this paper.

MEDICAID COVERAGE

You have probably heard of the Medicaid program. This is a health insurance

“Before we look at some details about Medicaid trusts, we should explain some of the reasons why Medicaid may be

relevant to you when you are a senior citizen.”

CAN I TAKE BACK ASSETS IN A

MEDICAID TRUST?

PAUL A. KRAFT Indiana Estate Planning Attorney

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People who work and pay taxes for any length of time will qualify for Medicare

when they reach the age of 65, and just about everyone is aware of this fact of

life. When you are younger, you probably don't think much about Medicare, so

you may not know all of the facts. It would be natural to assume that Medicare

will cover every health care matter that can come your way when you are a

senior citizen.

In reality, the Medicare program does not pay for long-term care. It will pay for

convalescent care after an illness or injury, but it does not pay for what is called

custodial care. This is the type of care you would receive if you were to reside in

Can I Take Back Assets in a Medicaid Trust? www.FrankKraft.com 3

an assisted living community or nursing home.

The vast majority of elders will require living assistance of some kind eventually,

so this gap in the coverage is significant, because long-term care is very

expensive. We practice law in the Indianapolis area, and the median annual

charge for a private room in a nursing home in Indianapolis is $97,411.

Since people often spend multiple years receiving long-term care, the overall

costs can be devastating.

MEDICAID ELIGIBILITY

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There is another government health insurance program called Medicaid that is

jointly administered by the federal government along with the state government.

This program will pay for long-term care, but it can be challenging to obtain

eligibility, because Medicaid is only available to people who are financially needy.

The limit on countable assets for Medicaid eligibility is just $2000 for an

individual, but fortunately, there are possessions that are not counted. Your

personal effects are not counted, and the household furnishings that you have

are not considered to be countable assets for Medicaid purposes.

You could possess one vehicle that is used for transportation, and unlimited term

life insurance is allowed. A whole life insurance policy valued at up to $1500 is

allowable, and your heirloom jewelry, your wedding ring, and your engagement

ring are not counted.

The biggest non-countable asset is your home, but in Indiana in 2015, there is

an equity limit of $552,000.

MEDICAID TRUSTS

Now that you understand the law of the land, we can look at some details about

Medicaid trusts. To qualify for Medicaid, you could divest yourself of countable

assets by giving them to your loved ones.

You do have to act in advance if you want to become eligible at the ideal time,

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because your eligibility is delayed if you do not complete the gift giving at least

five years before you submit your application. Direct gifting would certainly be an

option, but the creation of a Medicaid trust would be another option.

There are revocable trusts

that you can dissolve or

rescind if you want to, and

there are irrevocable trusts

that cannot be dissolved. A

Medicaid trust would be an

irrevocable trust, so if you

create this type of trust, you

would not be able to take

back the assets if it turns out that you never apply for Medicaid.

This can be disconcerting, but you could create an income-only Medicaid trust.

With this type of trust, you could receive income from the earnings of the trust,

but you could not access the principal. If you ever were to apply for Medicaid,

the principal would not be counted, but the income would probably go toward

the cost of the care you receive.

SUMMARY

Most seniors need long-term care eventually, and Medicare does not pay for

living assistance. Medicaid will pay for long-term care if you can qualify, but there

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are income and asset limits.

To get assets out of your own name so you can qualify for Medicaid, you could

convey assets into a Medicaid trust. A Medicaid trust would be a trust that you

cannot revoke, so you could not take back personal possession of the assets if

you never apply for Medicaid coverage.

At the same time, Medicaid eligibility can keep a great deal of money in your

family, so a Medicaid trust can serve a purpose late in your life. To learn more

about Medicaid as it applies to long-term care for seniors, schedule a

consultation with a licensed elder law attorney.

REFERENCES

Genworth Financial https://www.genworth.com/corporate/about-genworth/industry-expertise/cost-of-care.html United States Department of Health and Human Services http://longtermcare.gov /

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About the Author

Paul A. Kraft

Paul Kraft is Co-Founder and the senior Principal of Frank & Kraft, one of the leading law firms in Indiana in the area of estate planning as well as business and tax planning.

Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work. In addition to his practice, Mr. Kraft has lectured extensively in the areas of living trust planning, Medicaid planning, and presenting public and private seminars on the importance of proper estate planning. He has also authored various articles on estate planning and is a contributing author of LEGACY: Plan, Protect, and Preserve Your Estate–Practical Answers from America’s Foremost Estate Planning Attorneys. Mr. Kraft is a co-founder of the Indiana Network of Estate

Planning Professionals, a charter member of the American Academy of Estate Planning Attorneys and a founding member of the National Network of Estate Planning Attorneys. He is also a member of the Indianapolis Bar Association, including the Taxation, Business Law and Estate Planning sections; the Indiana State Bar Association, including the section on Taxation Law; the Indiana CPA Society; and the Estate Planning Council of Indianapolis. Mr. Kraft is admitted to practice law before the Supreme Court of Indiana, U.S. District Courts, and U.S. Tax Court.

Frank & Kraft A Professional Corporation Attorneys at Law www.FrankKraft.com 135 N. Pennsylvania Street Suite 1100 Indianapolis, IN46204-2485 Phone: (317) 684-1100 Fax: (317) 684-6111