The great joy of serving as a Florida estate planning and elder law attorney is when our years of expertise combined with some creativity results in making a real difference to someone in need. This phenomenon occurs often in the arena of Florida Medicaid planning where our vulnerable Seniors are faced with difficult medical circumstances and skyrocketing medical costs. One solution that may be highly effective is Medicaid planning using a powerful tool known as Irrevocable Income-Only Trusts.
Irrevocable Income-Only Trusts and Medicaid Planning For Florida Seniors
There is no one size fits all approach to Florida Medicaid Planning. People often ask questions about using trusts AND there are a few caveats to consider because despite being a powerful tool, these aren’t a magic bullet by any means.
A few caveats for Medicaid Planning with Trusts are as follows:
- A transfer of assets to a trust still involves the Medicaid look-back period and thus a transfer can trigger penalties as discussed further below.
- The level of control that the Medicaid applicant has over the trust assets can determine whether the trust is deemed a valid one for Medicaid planning purposes.
- Irrevocable Trusts are established so as NOT to be easily undone, so it is important to think through all aspects of your plan, under the guidance of an experienced expert, before acting.
What is an Income Only Trust for Medicaid Planning?
An Income-Only Trust is an Irrevocable Trust created by a Medicaid applicant (grantor), the applicant’s spouse or legal guardian. During the lifetime of the grantor, the trust income (or a portion thereof) is typically paid to the grantor or the grantor’s spouse. Trust income may also be paid to other beneficiaries at the discretion of the grantor. The trust principal is either retained in the Trust or may be payable to beneficiaries other than the grantor or grantor’s spouse at the discretion of the grantor.
Upon the death of the grantor, the trust income may continue to be paid to the grantor’s spouse and the principal retained may be paid to beneficiaries other than the grantor’s spouse. Otherwise, the trust may terminate and trust assets distributed to held in further trust for the remainder beneficiaries who are typically the grantor’s children.
Using an Income-Only Trust for Preserving Assets
When applying for Florida Medicaid or SSI Disability benefits in Florida for an institutional level of care, the individual may only have about $2,200.00 in “COUNTABLE ASSETS”. If the individual is married, the community assets will be pooled together to calculate what portion of the assets the applicant’s spouse may retain. The value of the principal place of residence plus one vehicle are not countable resources. The remaining assets owned by the individual or community spouse must be spent down and/or transferred if the individual has sufficient remaining assets to pay for care during the applicable “look back period”.
A penalty period is imposed for any asset transfers and is based on dividing the fair market asset value of transfers made during the look back period divided by the applicable regional monthly nursing home rate.
Using a Trust vs. an Outright Transfer to Beneficiaries
The benefit of using a Income-Only Trust for Medicaid planning is revealed when you compare it against the perils of an outright transfer to beneficiaries. An outright transfer to beneficiaries can lead to significant problems resulting from things like divorce, lawsuits, bankruptcy and other matters arising for the beneficiaries. Thus, the estate assets may be threatened or lost even after a valid transfer. On the other hand, a Medicaid applicant may transfer assets to an Income-Only Trust, thereby allowing the same benefits for those beneficiaries, ultimately preserving the estate and avoiding the risks.
Because the penalty period extends to Income-Only Trusts in the same way as outright transfers to beneficiaries, for purposes of getting eligible for Medicaid long term care benefits, it is important to think about this kind of planning far in advance of needing Medicaid…even when using Income-Only Trust for Medicaid Planning. With that in mind, Medicaid Planning With Irrevocable Income-Only Trusts still offers more long term advantages because the income may continue to be paid to the Medicaid recipient as a supplemental fund, similar to a Florida special needs trust while keeping Medicaid eligibility AND the estate assets may be preserved for the surviving spouse and future generations without subjecting them to the beneficiaries creditors and other risks.
Medicaid Planning With Irrevocable Income-Only Trusts and other elder law issues should be recognized as a critical part of your Florida estate plan and these matters are always very case specific. Thus, only an experienced Florida estate planning attorney should be utilized for this important process.
Steve Gibbs, Esq.