Revocable and Irrevocable Medicaid Trusts
Revocable and irrevocable Medicaid trusts are two of the most common trusts designed to protect your property, save on estate taxes, and help you avoid probate. If you’re not familiar with the difference between these two trusts, you can read about them in our previous post here. While both these trusts have their advantages and disadvantages, in this post we’ll focus on the disadvantages of using an irrevocable Medicaid trust.
You Lose Control Over Your Assets
The obvious disadvantage of transferring assets to an irrevocable trust is that you lose control over the trust’s assets. You no longer have any legal right to make decisions about those assets, and you may not receive any income generated from them. Tackling the high costs of long-term health care can also be accomplished by acquiring long-term health care insurance coverage. Long-term health care insurance can help to pay for the costs of home health and nursing home care while maintaining your assets. If you cannot obtain or afford coverage, then creating an irrevocable Medicaid trust, or a combination of both may be your best option.
You Can’t Make Changes
An irrevocable trust generally cannot be changed, amended, or modified after the agreement has been signed. A binding court order is necessary for an irrevocable trust to be changed or ended. However, this is a complicated process and approval for this court order can be difficult.
Your Application for Medicaid Will Have to Wait
Medicaid has a five-year “look back” period, during which time any transfers you make, including to an irrevocable trust, will result in a “transfer penalty”. Thus, you generally cannot fund an irrevocable trust and apply for Medicaid immediately.
Life Insurance Rules
If you create and transfer a life insurance policy into your trust, it’s with the assumption that you will live at least three more years. Should you pass away within three years of finalizing your irrevocable trust, the proceeds will return to your estate and be subject to taxes.
Yes, You Should Use an Attorney for Medicaid Planning
Even simple Medicaid planning can benefit from an attorney’s knowledge and experience. Medicaid has many rules, changes in-laws, and significant planning opportunities that can be easily missed if you do not have the proper knowledge. An experienced attorney can provide guidance and legal advice, determine if you should use legal documents such as trusts, and ensure that you are aware of the Medicaid rules that apply to your situation.
Parisi, Coan, and Saccocio, PLLC has over 100 years combined experience in estate planning, administration of client’s wishes after passing, and representing litigants in cases of disputed estate matters. If you are ready to create a Trust or Will, would like more information, or have further questions please contact us for a consultation at (914) 228-7448.