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Using Trusts for Florida Medicaid Planning

Today’s topic concerns Irrevocable Medicaid Trust pros and cons and also focuses on some costly common misconceptions about how these trusts are used and their benefits under new vs. old rules.

By Steven J. Gibbs, Esq.

Using Trusts for Florida Medicaid PlanningIrrevocable Medicaid Trusts (also referred to as Medicaid Asset Protection Trusts) are used as a tool for Florida Medicaid planning purposes. Because Medicaid planning in general is a federal and state coordinated welfare program, applicants are only allowed to possess a minimum amount of assets and must meet strict income limits. So, the tendency in elder law planning is to attempt to reduce assets and/or income in order qualify. One approach that developed over the years was gifting assets to an irrevocable trust that is designed for Medicaid planning.

Many people believe that irrevocable trusts offer an almost magical benefit when it comes to planning how to pay for long term medical care expenses and qualifying for Medicaid benefits. However, the unfortunate truth is that the Irrevocable Medicaid Trust has a very limited function under today’s Medicaid rules, which changed in 1993, and became even more strict after the enactment of the 2005, Deficit Reduction Act (“DRA”).

Irrevocable Medicaid Trusts [Old vs. New Rules]
The following are the drawbacks or CONS to using Irrevocable Medicaid Trusts under today’s Medicaid rules.

It used to be that an individual could place assets in a “Medicaid Qualifying Trust” in order to keep those assets and still qualify for Medicaid as long as he or she did NOT have the right to control the assets in the trust. However, this all changed after changes to the laws in 1993.

Prior to 1993, the Assets Placed in the Medicaid Qualifying Trust Would Not Automatically Be Deemed “Countable Assets” for Purposes of Determining Eligibility for Medicaid, and There Was No Transfer Penalty Thus Making These Trusts Very Useful.

Generally, prior to 1993, Irrevocable Medicaid Trusts were upheld to protect the assets, provided the applicant had no control over the assets or the assets were being preserved for other beneficiaries. However, if the Medicaid applicant was both the trustee and beneficiary of the trust, and distributions to the beneficiary were allowed in the discretion of the trustee, the assets would be viewed as if there was no irrevocable life trust, and the individual could be disqualified. So, back in the good old days, there was some basis to set up a Medicaid Qualifying Trust in order to protect assets for family members without any transfer penalty while allowing qualification for Medicaid; provided, these irrevocable Medicaid trusts had to be skillfully drafted to avoid disqualification.

All of the above changed after 1993. The updated Medicaid rules provided that any asset that could have been given to another beneficiary (i.e. family member) would be treated as a “countable” resource if the Medicaid applicant would be entitled to any distribution of the assets. If the Medicaid applicant was deemed to not be entitled to any distribution of the assets, then a transfer penalty would apply as if they had made an outright transfer. Remember, Medicaid is a “need based” program with “spend down” requirements, so countable assets will disqualify or penalize the applicant from receiving benefits.

Under Current Laws, Setting Up A Medicaid Qualifying Trust May Disqualify The Person From Medicaid Due To “Countable Assets” or a Disqualifying Transfer Unless Very Specific Circumstances Exist.

So, if the assets placed in an Medicaid Asset Protection Trust are “countable” because the Medicaid applicant is entitled to distributions from them, then he or she would exceed the asset limit and would be denied benefits. Alternatively, there would be little benefit to transferring assets to an irrevocable trust that wouldn’t allow the applicant any right to distributions, because it would be the same affect as an outright transfer to a third party thereby triggering a penalty if during the “lookback period”. Worse yet, under the DRA of 2005, the “lookback period” for transfers was extended to 60 months (5 years) and this penalty period now begins on the date that the person applies for Medicaid and not, as per the old rule, on the date that the transfer was made.

Top Benefits (Pros) to Irrevocable Medicaid Trusts
There are a couple of exceptions under the DRA which allow a transfer of assets to an irrevocable trust without a transfer penalty which are as follows.

1. Transfer Penalties Do Not Apply to Special Needs Trusts
First party “Florida Special Needs Trusts” for an individual under the age of 65 will not result in a transfer penalty and will not be deemed a countable asset for determining Medicaid qualification.

Pooled trusts or group trusts that are independently administered for the benefit of anyone regardless or age.

Special needs trusts are used as a supplemental fund and must also be specifically drafted to avoid disqualification from Medicaid and/or SSI benefits.

2. Still a Valuable Strategy for Asset Protection if Plan Ahead
Because asset protection is important in today’s litigious society, there is then still a valid purpose for establishing a Medicaid Asset Protection Trust. In my opinion, the value attributes primarily to the Medicaid applicant’s family rather than the applicant, and in any event, the look-back period is always looming.

3. Still a Viable Estate Planning Tool to Provide for Future Generations
Despite the disadvantages discussed above in terms of the look back period, if an aging person plans ahead, irrevocable trusts can still be used as part of a comprehensive Florida estate plan. Because these trusts are a contract with loved ones, they can be used to govern the distributions to family members with conditions and by appointing the right people to oversee the trust.

4. Irrevocable Income Only Trusts for Medicaid Can Be a Useful Planning Tool
For some of the same reasons discussed above, an Irrevocable Income Only Trust for Medicaid planning, which is a type of Irrevocable Medicaid Trust, can be useful despite the lookback period because it reserves income to the potential Medicaid applicant while safeguarding the bulk of the estate assets. When the look back period has expired, the assets would not be counted in Medicaid.

Oh, and one more reminder, an Florida revocable trust does NOT trigger any look back periods but also does NOT protect assets for purposes of Medicaid qualification.

Steven J. Gibbs is a trust and estate planning attorney who provides complete Estate Planning, Trust Planning, Business Planning, Asset Protection, Elder and Medicaid Planning, Real Estate, Probate and Trust Administration legal services in Florida and California. Steve’s main offices are located in Fort Myers, Florida, and San Juan Capistrano, California. Estate planning legal services are provided statewide in these locations.

The Gibbs Law Office was founded by Steven Gibbs in January 2009 upon the commitment to provide client-centered legal services.

Steven Gibbs founded the Gibbs Law Office in January 2009, committed to providing client-centered legal services.

Steve as he would rather be called, is not your typical attorney. If you appreciate the staunch egotistical mannerism of most firms, you will be delighted with Steve’s unpretentious approach to educating and then assisting his client. Instead of giving you his complacent and lofty ideas, he would rather pursue your expectations with professional conversation about resolving your concerns under the Law. It’s your life and it’s his job to make your legal expectations come true while using years of his guidance and knowledge.

Steve was admitted to the Minnesota Bar in 1999, the Florida Bar in 2007 and was admitted to the California State Bar in 2014.

Along his career path, he was an associate attorney for an insurance defense law firm; an in-house real estate negotiator for Target Corporation; and corporate counsel for Civix, LLC and Vice President for North American Properties where he was responsible for various real estate transactions, including legal issues and negotiating unresolved business issues. Prior to opening Gibbs Law Office, PLLC, he was an associate with the firm of Roberts & Engvalson, P.A. where he gained his knowledge of trusts, estate planing and Wills. He opened his own firm in 2008 and now focuses on laws that will enrich the needs of his clients throughout their lives and those of their children. The firm has developed a practice dealing only with Trusts and Estate Planning, Wills, Medicaid Planning, Elder Law, Real Estate, Business Law and Probate.

Quoting from Steve “I decided to practice in areas that families will need as they progress down life’s path. To help them with a solid foundation that will carry them throughout there lives is a rewarding experience for me and my staff.”


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