What is a Medicaid Income Trust?
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A trust can be used to perform many different functions, such as reducing or avoiding tax liability, easing lifetime financial management, protecting assets, preserving family wealth, ensuring continuity of a family business, donating to charities, voiding forced heirship laws, or create a pension scheme for employees or dependents. A properly structured and administered trust may produce substantial savings in income tax, capital gains tax and inheritance tax/estate taxes. By establishing a trust, probate delays, expenses, and requirements can be avoided. A trust allows a person to provide for those who may be unable to manage their own affairs such as infant children, the aged, or persons suffering from certain illnesses. Trusts provide flexibility in distributing its assets to beneficiaries according to the terms of the trust document. Rather than distributing shares to heirs, wealth may be retained in one fund and distributed in a specified manner, protecting trust beneficiaries from spending all their inherited property.
A trust can be created during a person's lifetime and survive the person's death. A trust can also be created by a will and formed after death. Once assets are put into the trust they belong to the trust itself, not the trustee, and remain subject to the rules and instructions of the trust document. Most basically, a trust is a right in property, which is held in a fiduciary relationship by one party for the benefit of another. The trustee is the one who holds title to the trust property, and the beneficiary is the person who receives the benefits of the trust. While there are a number of different types of trusts, the basic types are revocable and irrevocable.
The qualified Medicaid income trust is a legal instrument which meets criteria in 42 United States Code 1396 (p) (d) (4) (B) and which allows individuals with income over the institutional care program limits to qualify for institutional care services or for home and community based services assistance.
Before you qualify for the government nursing home assistance program, there is a 60 month look back to see if and when you transferred your assets for less than fair cash value or you transferred your assets into a trust system or any system of transferring your wealth for the purpose of becoming eligible for the nursing home program depriving the state of all your available resources for your long-term health care.
Transferring, giving away or selling resources for less than fair market value is called a "disposal of resources". Under the Deficit Reduction Act of 2005, the look back period (five years rather than three) will apply to transfers made on or after February 8, 2006. For every $4300 disposed of you will be disqualified for one month of Medical Assistance coverage of your nursing home care.
The penalty period for transfers made on or after February 8, 2006, starts on the later of: the first day of the month after which assets are transferred for less than fair market value, or the date on which you are eligible for Medical Assistance—Long Term Care. The change from 3 years to 5 will be phased in so that, for example, if you apply for Medical Assistance in March, 2009, the look-back period will be three years and one month. As of February, 2011, the full look-back period of five years will be fully in effect. If you give away property or money on more than one occasion, the second penalty does not begin to run until the end of the first one. The length of the disqualification depends on the value of the resources transferred.
