A Medicaid Asset Protection Trust is a valuable tool that many people implement with their estate planning and elder law attorney so that they can protect their assets while still qualifying for Medicaid. A Medicaid Asset Protection Trusts allows you to transfer assets to a special kind of trust where you are not the trustee, and not the principal beneficiary, but still have access to income from the trust, thereby allowing you to qualify after the 5 year look back period has run.
So what does all of this mean? It means that when a person establishes a Medicaid Asset Protection Trust, they are giving up some control over their assets to a third party trustee in order to protect those assets from nursing home expenses. Most often, that third party trustee is a family member, often an adult child. It is the trustee’s responsibility to manage any assets in the trust for the benefit of the beneficiaries. However, this role is not always very clear. The beneficiaries of a Medicaid Asset Protection Trust can be, and usually are, more than one person.
The trustor, or the person that sets up the trust looking for asset protection for nursing home costs, can be an INCOME only beneficiary. They can also name anyone else to be a principal beneficiary. Often times the trustee is the same as the principal beneficiary but this is not always the case. The trustee needs to be able to navigate who can receive what payments and why.
One of the hardest things for a trustee to do is to understand their role in making distributions. In the case of a Medicaid Asset Protection Trust, the trustee can only distribute income from the trust principal to the trustor. Let’s look at an example.
Mary establishes a Medicaid Asset Protection Trust as the trustor. She names her daughter Barbara as the trustee. Mary is an income beneficiary. Barbara is the trustee and principal beneficiary. Mary transfers a $500,000 brokerage account to the trust. Barbara, as trustee, is now in control of this account. The brokerage account has mostly high dividend stocks and bonds. This means that the account pays her $3000 a quarter in dividends and interest. Because Mary is an income beneficiary, Barbara can pay to Mary the dividend and interest payments directly. Barbara however cannot sell off some of the stocks and distribute the proceeds directly to Mary because this would be a principal distribution and thereby Medicaid may consider the trust assets to be a countable resource. As a principal beneficiary, Barbara could distribute the money to herself, and then gift it to Mary, but cannot give the principal to her directly. If Mary names others as principal beneficiaries, Barbara may also distribute the principal to them.
Knowing your role as trustee can mean that your loved ones are able to protect their hard earned assets while being able to receive the care that they need to keep them happy and healthy. If you have any questions about your role as trustee of a Medicaid Asset Protection Trust, seek the counsel of an experienced estate planning and elder law attorney to assist you and your family with this very important planning tool.
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