Question: “In preparation for Mom needing to rely on Long Term Care Medicaid benefits in the future, we have been gifting to a recently created Trust so that we can reduce the amount of countable resources that belong to our mother. Is this something that we should be doing?”
Answer: The most likely answer to your question is that is not something you should be doing. First, was this transfer and Trust plan something that an experienced Elder Law Attorney assisted you in setting up? An experienced Elder Law Attorney would know that certain actions are good strategies in one situation but huge mistakes in different circumstances. Based upon the wording of your question I assume that you did not in fact get the assistance of an Elder Law Attorney, and if that is in fact correct it is highly unlikely that you have properly structured an asset preservation strategy. The answer to your question depends upon a number of variables. Generally, the gifting of monies during the 5 year period prior to your mother needing Medicaid assistance is a very bad idea unless it is done pursuant to one of a few very sophisticated planning strategies which an Elder Law Attorney recommended after an in-depth analysis of your mother’s personal and financial circumstances.
The most important issue is the amount of time you believe your mother has until she will need long term care and how much money has been left in her name to pay for that period of time. If your Mother is 60 and in good health, the ability to safely transfers assets without impacting Medicaid is probably a reasonable risk. On the other hand if your mother is 80 and in poor health transfers of funds pose a substantial risk unless enough money remains in your mother’s name to pay for five years of care should she need to go into a skilled care facility next week. The financial calculations must be quite detailed and cover numerous possible future scenarios to make sure whatever is done, your mother is protected.
Even if the financial calculations were done properly, there is a real issue as to where the assets are being transferred and for whose benefit. If the Trust is a revocable trust in your mother’s name and for your mother’s benefit, or a revocable Trust or irrevocable trust where your mother is entitled to receive or request the payment of the trust principal to herself, then most likely the money transferred will still be considered your mother’s for purpose of Medicaid. This can be especially problematic if the money is considered your mother’s for Medicaid purposes, but the terms of the Trust don’t allow the money to be used for your mother’s long term care.
If your mother has sufficient funds remaining in her name, sufficient time prior to needing long term care and a properly drafted trust, it is possible to create an asset preservation plan which would work. This is done through the use of what is known as an Irrevocable Income Only Trust. These are complex Trusts and will be closely scrutinized at the time of application for Medicaid.
Any error in the financial analysis or in the terms of the Trust could result in a denial of Medicaid or a substantial penalty, and leave your mother in a very precarious situation.
This is not the type of planning that should be done without the assistance of an experienced Elder Law Attorney. An experienced Elder Law Attorney will understand that he or she represents your mother, and the primary obligation is to protect your mother and that any asset protection must be done with full disclosure and in full compliance with the law. If you did not have the assistance of an Elder Law Attorney in creating the Trust and formulating your asset preservation strategy, then it is essential that you meet with an experienced Elder Law Attorney as soon as possible to review and advice your family as to any necessary modifications.
James C. Siebert, Attorney at Law
Arlington Heights, Illinois 60004