In order to assist you in qualifying for Medicaid, the trust must be irrevocable. However, in New York even an irrevocable trust can be altered or undone if necessary.
Yes, for as long as you are able to manage your own affairs, there are no legal restrictions to serving as Trustee of your own Medicaid trust. You and your own spouse can serve as Co-Trustee together as well. There are some risks with serving as Trustee of your own Medicaid trust, and you really need to stick to the trust rules in order to make it work for Medicaid qualification purposes.
As a general rule, you can manage your assets in the trust the same way you would outside of the trust. If you own a stock portfolio, you can continue buying and selling stock. If your house is in the Medicaid trust you will retain property tax exemptions and the ability to sell your house without requiring permission from anyone. The major restriction on the trust is that you cannot distribute principal to yourself. If you need a new roof on the house, principal can be used for that purpose (or anything connected to your residence), but you cannot simply cash $50,000 in principal out of the trust to purchase a new vehicle or go on a trip.
Yes. Any income, interest, rent, or dividends generated by the trust goes to the trust creator. This gives the trust creator cashflow to cover ongoing expenses that cannot be paid for by the trust. We usually draft the Medicaid trust so that the right to take this income lapses at a certain point if it is not withdrawn, to help qualify for Medicaid.
Not exactly. Our Medicaid trust is designed to be income tax neutral. What this means is that you will continue to report trust income on your personal income tax return. You will not need to pay to have an extra income tax return prepared and you will continue to pay income tax at the lower bracketed rates for individuals rather than the higher rates at which trusts pay income taxes.
If you want or need to withdraw principal from the trust, the Trustee can make a distribution of principal to a child/grandchild or other beneficiary of the trust specifically designated in the trust document. That person would then make a tax-free gift of the principal back to you. This has to be structured in a way to avoid gift tax reporting, and you need to consult with an attorney or CPA to do this properly.
Once you pass away, the terms of the trust should mirror the terms of your Last Will and Testament and provide for distribution to the beneficiaries of your choosing, either outright or staying in trust for them for a period of time.
Once your assets are re-titled to the trust, you do not need to have any ongoing expenses. Most of our clients choose to enroll in our Annual Maintenance Plan that provides annual meeting opportunities and other benefits, but there is no requirement to enroll. Also, there won’t be any added taxes or administrative expenses.
Medicaid trusts often come under scrutiny when the government is trying to save money on health expenses for the elderly. The amount of time you need to create a Medicaid trust in advance of needing care expanded from 36 months to 60 months. There is consistent talk in Congress to expand this period beyond 60 months. These Medicaid trusts will nonetheless remain a valuable planning tool, they just may need to be implemented even earlier in order to be as effective as possible.
The major hurdle for most people is the restriction not allowing principal to be distributed to the trust creator. We spend a lot of time with clients discussing trust funding and making sure they have enough money outside of the trust in order to not encounter this problem. The only other major disadvantage is for people who do not make the 60-month loopback period and potentially have to unravel the trust to complete the Medicaid qualification process.