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Trusts can protect assets


Dear Patty: I have read a couple of articles about trusts, thinking a trust might be beneficial to me. Then my friend told me that I needed to transfer all of my assets to a special needs trust so I could protect my assets and still get Medicaid assistance went I move into the nursing home. I am 79 years old and will need nursing home care in the next couple of months. Should I transfer my savings to a special needs trust for myself?

Your question is one I am often asked. First, just so there is no confusion, a trust is nothing more than giving someone called a trustee some property and/or cash called assets along with a written set of rules the trust document.

The trust document will name a beneficiary and describe how the trustee must manage and distribute the trust assets to or for the benefit of the beneficiary. The person who writes the rules is called the grantor or settlor. The settlor is often the donor who gives assets to the trustee of the trust. Then the trustee owns the assets, but can use the assets only for the named beneficiary.

So, your question is: Can I, as a settlor, create a trust for myself, as beneficiary, so I can have the use of my assets and still get Medicaid nursing home benefits? The answer to your question is based on your age. Last year in this column, I answered a similar question confirming that a disabled young woman could fund a special needs trust for herself with assets from a personal injury award while maintaining eligibility for Supplemental Security Income and Medicaid.

While there is a basic rule against gifting to achieve Medicaid nursing home eligibility, federal and state law grants an exemption from the transfer penalty if the trust is funded by a person who is under 65. (When a transfer penalty is imposed, it means Medicaid will pay for doctor and hospital costs, but it will not pay for the nursing home cost.) Additionally, the trust must have a provision that instructs the trustee to reimburse the state for Medicaid expenditures when the beneficiary dies or the exemption from the transfer penalty will not be approved.

Since you are 79, any transfer into trust for yourself will result in a transfer penalty. However, you can transfer funds to a trust for yourself that contains the required reimbursement language, provided you pay for the period of ineligibility that results from the transfer.

So you could transfer part of your assets into a trust for yourself and use the remaining assets to temporarily pay the nursing home cost. You will not be able to protect all of your savings but might be able to protect about
one-half, depending on the amount of your savings.

Please understand that this short summary cannot be considered legal advice. Before transferring your assets to a trust, you should talk with a certified elder law attorney so that any steps you take are within the state and federal laws.

The rules allowing the use of a special needs trust are different if the Medicaid applicant has a spouse. I will address special needs trusts for a surviving spouse next week.

Patricia Flora Sitchler is a certified elder law attorney and assists families in planning for disabled children. Patty is a resident of La Vernia and maintains offices in San Antonio as a shareholder in the firm of Schoenbaum, Curphy & Scanlan, P.C.

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