MEDICAID TRUST

Is it irrevocable or revocable?

The Medicaid Trust is irrevocable, meaning once it is created it cannot be changed. In some cases, you might allow a Trust Protector (also known as Trust Advisor) to make modifications.

Is a separate tax identification required?

If the Medicaid Trust is set up as a Grantor Trust, then no tax identification is required (you can use the grantor’s social security number). If the Trust is a non-grantor trust, then you would secure a separate tax identification number.

If the Medicaid Trust is set up as a Grantor Trust, upon death of the grantor, is a tax identification number required?

Yes, a tax identification number is required upon the grantor’s death if the Medicaid Trust is set up as a Grantor Trust.

Can you be your own Trustee?

No, this could spoil the protection from the Medicaid spenddown.

Is a gift tax return required?

Generally no, but it is possible to structure the Medicaid Trust as what is known as a completed gift or an incomplete gift. The selected method will depend on whether or not you are dealing with a taxable estate. If it is not a taxable estate, an incomplete gift is generally preferred as it will receive a step-up in tax basis upon the death of the grantor.

Is this subject to estate tax upon my death?

Yes, if an incomplete gift. If a complete gift, then the Medicaid Trust is outside of your taxable estate.

Is there creditor protection?

Yes, this provides protection from creditors during life, specifically from the Medicaid spenddown.

What assets can be placed in this type of Trust?

Any assets can be placed in the Medicaid Trust. Note, you would not want to transfer retirement plan assets into this type of trust because doing so would require payment of income tax on the funds removed from the retirement account.

How does it work?

The Medicaid Trust will hold assets more than the Medicaid asset limit in order to qualify for means-tested benefits. This type of must be irrevocable. Note, there is a 5-year look-back period applies gifts when applying for Medicaid. Transfers into a Medicaid Trust would constitute a gift even if categorized for federal tax purposes as an incomplete gift.