Qualifying for Medicaid, called MassHealth in Massachusetts, is one of the largest benefits of using an irrevocable trust as part of your estate plan.
An Irrevocable Trust protects your assets in the event of a long term care illness, such as Alzheimers, Dementia, Parkinson’s or Stroke where nursing home care is likely needed. The goal is to safeguard assets for your or your spouse’s future needs, as well as ensuring an inheritance to your beneficiaries.
Medicaid (MassHealth) Qualification Limits
In Massachusetts, statewide nursing home costs averaged $350/day for nursing home care – more than $127,000 per year. Assisted living, which provides fewer services and is appropriate for seniors who can handle most of their day to day activities, averages $4,645 per month.
While the costs of care continue to rise, many families remain unable to figure out how to pay for these services. Often this leaves seniors in the position of having to rely on their adult children to cover their care expenses. MassHealth will pay these costs for those who qualify. However, to be eligible for MassHealth an applicant needs to meet strict financial requirements. The basic rule for MassHealth long-term care eligibility is that the applicant, whether single or married, can have only $2,000 in countable assets in their name. If the applicant is married and the spouse plans to continue living in the community, the spouse is allowed to keep a maximum of $120,000 in their name. (Figures are from 2016.)
If an applicant applies to MassHealth with more assets that this, they will be required to spend down those assets to the applicable limit, usually on healthcare costs. These asset limits can wipe out the savings of people who have worked hard provide for their families. Applicants who have not properly planned may be denied MassHealth eligibility or will have to spend all of their hard-earned assets on healthcare costs, leaving nothing for their families or favorite charities.
Irrevocable Trusts May be the Answer
When assets are transferred to an irrevocable trust they can be legally sheltered from long-term care costs, allowing the owner to qualify for MassHealth. Assets transferred to an irrevocable trust can still be used by the owner. An owner of a house, for example, once transferred to an irrevocable trust, would still live in the house and pay their bills as they do currently. They could also rent out or sell the house and use the proceeds to purchase a new house. What they can’t do is remove principal from the trust. Principal is an asset’s value on day one after is has been placed in trust. By limiting direct access to this principal, we also shelter the principal from creditors and asset-based programs such as MassHealth.
Understanding MassHealth’s five-year-look-back period is crucial to this type of planning. MassHealth has the right to examine an applicant’s bank and financial records for up to five years immediately prior to the application. If they discover a transfer of assets during this period, whether to a trust or another person, they will impose a disqualification period on the applicant’s eligibility. This makes planning well before a person actually requires MassHealth eligibility extremely important.
By planning ahead your hard earned assets can be protected from creditors and long-term care costs, taxes on your estate can be greatly reduced, probate costs eliminated and your heirs protected to use their inheritance as they see fit. In order to utilize an Irrevocable Trust strategy timing is key—it is not the right strategy for an emergency illness situation.
For more information on estate planning with trusts, please contact Matthew Karr at firstname.lastname@example.org or 617.299.6976.