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Using medicaid planning trust for estate planning

Can you explain, as briefly as possible, how a Medicaid planning trust works in Massachusetts? I have a feeling I should have one of these but am not really sure how it works. Thank you.

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No, but I can offer this long-winded response.  Medicaid, commonly known as Masshealth, is a needs-based federal program administered by Massachusetts  By “needs-based,” I mean that the program is designed to provide health care only to those individuals whose assets fall below certain, very low, thresholds (think of Medicaid as a form of health care welfare).  However, while your assets can disqualify you from being eligible for Medicaid benefits, your income cannot.  So for some individuals who have too many assets to qualify for Medicaid benefits, a Medicaid planning trust may be a useful estate planning tool.


This is a classic example of how donors can use irrevocable trusts to gain an estate planning advantage.  The donor gives up all control over the property transferred to the trust, including the right to access the principal of the trust.  However, in most cases, he retains the right to the income produced by the assets of the trust.  Since income will not disqualify you from receiving Medicaid benefits, relinquishing control of your assets while maintaining your ability to receive the income can be a win-win situation.  However, clients who are considering such a trust must consider the following points:


• You must be ready to give up all control over your assets.  Your trustee will hold your assets and will manage the assets in accordance with the provisions of the trust document, which will typically read “no distributions of trust property to the donor, ever.”  So you will no longer be able to write a check out of your checking account to pay for a new car or a trip to Florida.


• There are significant income tax and transfer tax issues that must be thoroughly addressed with a qualified professional.


• As a result of the transfer of assets to an irrevocable Medicaid planning trust, the donor will be ineligible for Medicaid benefits for some period of time, known as the “disqualification period.”  In other words, there will be a period of time when the donor cannot get at his assets and is not yet able to receive Medicaid benefits. 


For more information about this subject, visit our Massachusetts Estate Planning Discussion Forum.  Good luck.


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