At a basic level an asset preservation trust is a device that protects assets from counting towards the Medicaid asset cap for nursing home eligibility. The assets in the trust, in addition to the already Medicaid exempt assets, are then shielded from being used for nursing home costs.
In order for the assets to be protected from the Medicaid asset cap, the assets must be transferred to the trust five years or more before applying for Medicaid. In practice, transferring an asset to the trust means that the trust becomes the owner of the asset. In addition, the trust must be set up in such a way that makes the transfer irrevocable. Once an asset has been transferred to the trust, the asset cannot then be transferred back to the original owner.
Once assets have been transferred to the trust, the trust assets are managed by the trustee. The trust creator specifies who they want to be trustee and can name successor trustees if the original trustee is unable to serve. However, the trustee cannot be the trust creator or the trust creator’s spouse. Typically, an adult child, other relative, or trusted family friend is chosen to be a trustee.
The trustee then manages the trust assets according to the terms in the trust document. Even though transfers to the trust are irrevocable, the trust creator can still set out detailed instructions about how trust assets are to be managed. For example, if the trust creator has a particularly trusted financial advisor or tax professional that they have a long-term relationship with, the trust creator can specify that the trustee continues to use their services. The trust creator can also specify distributions to be made to trust beneficiaries. For example, the trustee could specify that assets be used to contribute towards a relative’s educational expenses. The trust creator can also specify how the trust assets will be distributed to beneficiaries after the death of the trust creator.
The main restriction on what a trustee can do is that distributions of principal cannot go to the trust creator or the trust creator’s spouse. Even if a trust asset is sold, the proceeds of the sale cannot go to the trust creator or their spouse. Only trust income can be distributed to the trust creator or the trust creator’s spouse. Even in the case of trust income, those distributions can still affect eligibility for Medicaid nursing home coverage.
An asset preservation trust should only be set up in consultation with an experienced elder law attorney. An elder law attorney will help determine whether or not an asset preservation trust is in a client’s best interests. If a client could use an asset preservation trust, an elder law attorney will help a client go through the full range of options of what language and options can and cannot go into an asset preservation trust document and then advise on what assets should be placed in the trust and which assets should remain outside the trust.
If you want to determine if an asset preservation trust can help protect your assets from potential nursing home costs, please call Martha C. Brown & Associates at (314) 962-0186.