With long-term care costs reaching $90,000 per year in Massachusetts, a long-term nursing home stay can easily impoverish all but the wealthiest of families. However, by using proper estate planning techniques, including trusts, you can protect your family from such financial devastation. Here are a couple of the options available in planning for MassHealth (Medicaid) qualification.
Planning with a Medicaid (MassHealth) Trust
An irrevocable trust, sometimes called a “Medicaid Trust,” is a financial instrument used to protect vital assets. Upon creation, assets that the trust creator wishes to shelter are placed into the trust. They are then entitled to receive all income or dividends generated by those assets, but cannot directly receive principal. If the principal were directly accessible then it would also be subject to nursing home costs. In this manner, assets can be preserved for future generations while still providing a regular stream of income.
An irrevocable trust can be used to shelter real estate only, or to shelter real estate and other investments such as stocks, bonds or cash. Because MassHealth’s five-year look-back period still applies to irrevocable trusts, they are most useful as planning tools for people who are relatively healthy, and who are not expected to go into a nursing home within five years.
The Pourover Trust Can Provide Flexibility
A pourover trust is different from an irrevocable trust in it is completely revocable and can be amended at any time. A pourover trust allows a married couple to shelter assets while still allowing access to the principal. This is accomplished by using what is known as a “testamentary trust” coupled with a will and revocable trust.
Generally, one married spouse will die before the other. Since it is impossible to know who will pass first, both husband and wife should be parties to a joint revocable trust. The assets to be protected from nursing home costs can then be placed into that trust, and remain fully accessible. When one spouse dies, the terms of the revocable trust cause some or all of the assets in trust to “pour over” to the estate of the spouse who has died. That spouse’s will would then devise those assets to a testamentary trust for the benefit of the surviving spouse, to maintain the spouse in his or her accustomed standard of living. Since testamentary trusts are exempt from long-term care costs, the assets in the trust are fully protected.
The pourover trust provides great flexibility because it is revocable during the lifetime of both spouses, and the spouses have full control over the assets without interference from the courts or their children. Additionally, the pourover trust is not subject to the look-back period for MassHealth (Medicaid) eligibility.