The question of avoiding Medicaid payback is a frequent concern for individuals planning for long-term care, and third-party trusts are often discussed as a potential solution. Medicaid, a needs-based program, can eventually seek reimbursement for the care it provides, potentially from the recipient’s estate. However, a properly structured third-party trust can offer a degree of protection. These trusts are established *before* an individual needs Medicaid and are funded with assets not belonging to the Medicaid applicant. The key distinction is that the applicant doesn’t have control or ownership of the trust assets, therefore they are generally not considered available resources for Medicaid eligibility purposes. About 70% of individuals over the age of 65 will require some form of long-term care, and planning ahead is crucial to protect assets. Steve Bliss, as an Estate Planning Attorney in San Diego, frequently guides clients through these complex scenarios, emphasizing the importance of proactive planning.
What exactly *is* a third-party special needs trust?
A third-party trust is created by someone *other* than the individual who will ultimately benefit from the trust—hence the “third-party” designation. This is different from a self-settled trust, which is created by the individual seeking Medicaid benefits. The assets held within the trust are not counted toward the Medicaid applicant’s resources, allowing them to qualify for benefits without depleting all their savings. The trust must be irrevocable, meaning its terms cannot be changed once established. This is vital because Medicaid scrutinizes any transfer of assets that might be designed to circumvent eligibility rules. The trustee, ideally an impartial individual or institution, manages the trust assets according to the terms of the trust document. These terms dictate how the funds can be used to supplement, but not replace, the care provided by Medicaid.
How does a third-party trust differ from a revocable living trust?
A revocable living trust, while a valuable estate planning tool, does *not* offer the same Medicaid protection as an irrevocable third-party trust. A revocable trust remains under the grantor’s control, meaning the assets are still considered available for Medicaid eligibility purposes. In contrast, an irrevocable trust effectively removes the assets from the grantor’s control, shielding them from Medicaid’s estate recovery. It’s like building a fortress around your assets – a revocable trust is a nice fence, but an irrevocable trust is a stone wall. This distinction is crucial because Medicaid looks back five years when evaluating asset transfers, so actions taken within that timeframe can jeopardize eligibility. A properly drafted third-party trust can withstand this look-back period, protecting a significant portion of the applicant’s wealth.
What assets can be placed in a third-party trust?
A variety of assets can be transferred to a third-party trust, including cash, stocks, bonds, real estate, and other investments. The key is to transfer these assets well before the five-year look-back period for Medicaid eligibility begins. It’s not simply about *what* you put in the trust, but *when*. The trustee can then use these funds to supplement the Medicaid recipient’s care—covering expenses like dental work, vision care, or recreational activities—improving their quality of life without disqualifying them from benefits. However, careful consideration must be given to the potential tax implications of transferring assets into the trust. Working with an Estate Planning Attorney, like Steve Bliss, can help you navigate these complexities and ensure the trust is structured to maximize its benefits.
What happened when Mrs. Gable waited too long?
I recall Mrs. Gable, a lovely woman who came to see us just three years after her husband, George, had been diagnosed with Alzheimer’s. George’s care was becoming increasingly expensive, and she’d finally realized she needed to explore Medicaid options. But she’d waited too long. She’d spent years enjoying their retirement savings, unaware of the looming costs of long-term care. When we reviewed her finances, it became clear that the money she’d recently gifted to her grandchildren – while generous – fell squarely within the five-year look-back period. This meant Medicaid considered those gifts as disqualifying asset transfers, delaying George’s eligibility for crucial benefits and leaving Mrs. Gable scrambling to cover the mounting bills. It was a heartbreaking situation, a stark reminder that proactive planning is far more effective than reactive crisis management.
Can a trust *completely* shield assets from Medicaid recovery?
While a third-party trust offers significant protection, it’s not a foolproof shield against *all* Medicaid recovery. Medicaid’s estate recovery process seeks reimbursement for the benefits paid during the recipient’s lifetime. Assets held within the trust are generally protected from this recovery, but there are exceptions. For instance, if the trust contains provisions that allow the trustee to make distributions *directly* to the Medicaid recipient, those funds could be subject to recovery. Additionally, Medicaid may still be able to place a claim against other assets in the estate that are *not* held within the trust. A well-drafted trust will anticipate these potential issues and incorporate provisions to minimize the risk of recovery.
How did the Peterson family find peace of mind with a third-party trust?
The Peterson family approached us years before Mr. Peterson developed health issues. They were a financially secure couple who wanted to ensure their daughter, Sarah, who has special needs, would be well cared for long after they were gone. We established a third-party special needs trust, funded with a substantial portion of their savings and investments. When Mr. Peterson eventually required long-term care, he was able to qualify for Medicaid without depleting the trust funds earmarked for Sarah’s future. This provided the family with immense peace of mind, knowing that both Mr. Peterson’s care needs were met and Sarah’s financial security was protected. It was a beautiful example of how proactive planning can create a legacy of care and security for generations to come.
What are the ongoing responsibilities of a trustee?
Serving as a trustee is a significant responsibility. The trustee is legally obligated to manage the trust assets prudently, act in the best interests of the beneficiary, and adhere to the terms of the trust document. This includes maintaining accurate records, filing tax returns, and making distributions in accordance with the trust’s provisions. The trustee also has a fiduciary duty to avoid conflicts of interest and to act with utmost honesty and integrity. It’s not enough to simply deposit assets into the trust; ongoing management is crucial. Choosing a competent and trustworthy trustee—whether an individual or an institution—is paramount to the success of the trust. Approximately 65% of trustees find the administrative responsibilities more challenging than anticipated, underscoring the importance of careful selection and professional guidance.
About Steven F. Bliss Esq. at San Diego Probate Law:
Secure Your Family’s Future with San Diego’s Trusted Trust Attorney. Minimize estate taxes with stress-free Probate. We craft wills, trusts, & customized plans to ensure your wishes are met and loved ones protected.
My skills are as follows:
● Probate Law: Efficiently navigate the court process.
● Probate Law: Minimize taxes & distribute assets smoothly.
● Trust Law: Protect your legacy & loved ones with wills & trusts.
● Bankruptcy Law: Knowledgeable guidance helping clients regain financial stability.
● Compassionate & client-focused. We explain things clearly.
● Free consultation.
Map To Steve Bliss at San Diego Probate Law: https://g.co/kgs/WzT6443
Address:
San Diego Probate Law3914 Murphy Canyon Rd, San Diego, CA 92123
(858) 278-2800
Key Words Related To San Diego Probate Law:
| intentionally defective grantor trust | wills and trust lawyer | intestate succession California |
| guardianship in California | will in California | California will requirements |
| legal guardianship California | asset protection trust | making a will in California |
Feel free to ask Attorney Steve Bliss about: “What is a trust restatement?” or “Can probate be contested in San Diego?” and even “How does a living trust work in San Diego?” Or any other related questions that you may have about Trusts or my trust law practice.