An asset preservation trust is a type of trust that allows individuals to set aside assets to protect them from being counted toward Medicaid nursing home eligibility. However, to be a fully effective shield against being counted for Medicaid eligibility, assets must be in the trust for five years before applying for Medicaid nursing home coverage. Therefore, the use of an asset preservation trust does require advance planning.
There are a couple factors that distinguish an asset preservation trusts from living, or revocable, trusts.
The biggest difference is that transfers to asset protection trusts are irrevocable. Once an asset goes into an asset protection trust, neither the creator of the trust, nor the creator’s spouse, can take the asset back out of the trust. If the asset is an income generating asset, such as a CD, savings account, or dividend producing stock asset, then the income can still go to the trust creator. However if the trust income does go to the trust creator, or the trust creator’s spouse, the income will affect Medicaid eligibility.
Another important feature of an asset preservation trust is that neither the trust creator nor the trust creator’s spouse can act as trustee for the trust. Typically, the trustee for an asset preservation trust is a trusted child or family member of the trust creator. The trust creator can still provide instructions to the trustee in the trust document on how the trust is to be managed, however, these instructions may require careful drafting in order to still be classified as an irrevocable trust.
The use of an asset preservation trust as an effective estate planning tool requires significant thought and expertise. Individuals should meet with an experienced elder law attorney when considering using an asset preservation trust. An elder law attorney is needed to draft the trust in order to comply with Medicaid eligibility rules and to go over with a client the process of selecting potential trustees. An elder law attorney can also help clients to determine what assets should go into an asset preservation trust and which can remain in the client’s name.
To see if an asset preservation trust would be an effective tool for your estate plan, please call Martha C. Brown & Associates at (314) 962-0186.