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Understanding use of a Medicaid trust to qualify for benefits

On Behalf of | Sep 9, 2022 | Health Law Attorneys

Many Texas residents will face a need for Medicaid eligibility at some point in their life when they need specific medical services that their insurance does not cover. Chief among these needs is residency in a skilled nursing facility. Medicaid is an asset-based program with very low financial asset standards that must be met, and many Texans have assets well in excess of what the program requires. One of the primary methods of becoming eligible for Medicaid is establishing a Medicaid trust, but this step is not without its pitfalls.

Asset vulnerability in irrevocable trusts

An irrevocable trust with another person named as trustee is no longer in the asset holder’s control, which could result in issues. The trust makes the assets property of the trustee, and irrevocable trusts cannot be changed. An asset holder can designate themselves or their spouse as the trustee, but the assets remain as personal property per Medicaid Law. Naming someone as a trustee becomes a very precarious decision because they have absolute control of trust assets, including real estate property.

Potential tax issues

Another potential problem with an irrevocable Medicaid trust is taxes on income generated by trust assets when the original asset holder names themselves or a spouse as trustee. Not only is income considered a personal asset, but the principal owner who needs cash for medical expenditures will owe a considerable amount in taxes.

The final problem that a person in need of Medicaid coverage will face is that failing to secure their assets in any way may end in asset seizure by the skilled nursing home as payment for residency. Furthermore, a house may be included in the trust, and a contractual assurance that a spouse can inhabit the property owing to forfeiting personal property control in the trust may be required.