Protecting Your Lifetime Savings: The Full Truth About Medicaid Asset Protection

Are you concerned about protecting your assets from the high costs of long-term care? In this episode, we dive deep into Medicaid asset protection, explaining how Medicaid asset protection trusts work, their benefits, and the potential pitfalls you need to know. Learn why Medicaid asset protection is a hot topic among attorneys and discover key considerations before making any decisions. Don’t miss this essential guide to Medicaid asset protection and long-term care planning.

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Transcript

>> Wes Cuprill: 0:00

Hello, I'm certified financial planner Wes Cuprill, and this is Wealthwise Women, the show that's rewriting the narrative that personal finance in investing are just for men and just for insiders. Because whether or not the rest of my industry realizes it, the future of wealth in the United States is female. And I aim to foster that future. One episode, at a time. So join me every week as I attempt to add humor and entertainment to the otherwise snooze feest that is personal finance, addressing various topics along the way from the lens of how they affect women in particular. And if you like what you hear, be sure to subscribe to our channel and our newsletter, the link to which you can find on the screen or. In the details below. That being said, let's get to this week's episode. Hello there and welcome back to the show. It would appear that, at least for the moment, we are experiencing a reprieve from a lot of the turmoil that has gripped the stock market as of late because of the tariffs. We have a little bit more clarity about the tariffs. Many of them have actually been paused, even if just temporarily, and all of that was very well received by the markets recently. Time will tell exactly the long term consequences of all of this, but as of late we have some calmer waters. I'm not going to dive into that topic though, much on this week's episode. Instead, I'm going to shift gears to something completely unrelated because I have received several questions about it as of late and I thought why not dive into it a little bit further. The topic at hand is Medicaid Asset Protection Trust. This is becoming a very popular topic for attorneys who are on the dinner seminar circuit. I've heard from several clients that they recently attended an event put on by an attorney where they talked a lot about these trusts and honestly, the rise in their popularity is making sense. So if you haven't heard of it, a Medicaid asset protection Trust is a an irrevocable trust in which you put all of your assets into it so they all come off of your personal balance sheet so that if you ended up needing long term care, you would qualify for Medicaid provided long term care. Now with long term care getting more and more expensive, people are worried that if they were to need to go into a facility, it could end up bankrupting them, they would spend down all of their assets and they wouldn't have anything left to leave behind at value. Medicaid asset protection trusts, I will admit, are on paper, you end up being worth $0. But you know, you still technically, I guess you could say that you have your assets, they're just in that irrevocable trust and you would end up qualifying for Medicaid if you ended up needing long term care. However, I do want to stress some of the pitfalls that exist around these M MA pts as they're called. The first pitfall is that Medicaid asset protection trusts are still subject to what's called a five year look back period. So let's say you created the trust, you put all of your assets into it and then three years later you ended up needing to go into long term care. Medicaid is going to say, well you didn't fulfill the five year period only three years ago you were worth this much. You do not qualify for Medicaid. Instead they are going to count all of your assets that you put into the trust and you won't qualify. So that is one of the big things. If you don't think that you'll need long term care in the near future, then it shouldn't be an issue. But if there's aibility that you're going to need long term care sometime within the next five years, that a Medicaid asset protection trust is not a good way to go. There are potentially significant income tax consequences that could result from trying to fund the trust. Even if you are in the disbursement period for your qualified accounts, liquidating them and going through all of that process could result in significant income tax consequences in that first year. So if you do set up a trust and that is the route that you want to go, you do need to consult with an accountant to ensure that you do it in the most efficient way possible. While understanding though that it is still going to result in a pretty significant tax hit in that first year. These trusts can be very expensive to create and administer. So that is one thing to also consider. This isn't just, you know, your regular old will or revocable trust that you're setting up. This is a much bigger endeavor. So attorneys are going to charge a large fee to get it done. So that's something to keep in mind. Here's the biggest pitfall though. Medicaid Asset protection trusts are what are called irrevocable. It means as soon as they are set up and funded, you can't take it back. Okay. And essentially what you're doing is you're taking your assets, putting them into the trust and they are no longer yours. You lose control over everything in the trust. Now Typically, these are set up by somebody who gives the control of the trust to children. It's the idea that my kids will continue to take care of me. So whatever I might need, they will still use the assets in the trust to ensure that I am cared for. By all means, do that. The idea is that family remains close. The only thing that I'll say, and this's just a cautionary tale because it does happen, family relationships can get strained when money is involved and you are at the mercy of your children. I'm not saying that anything bad is going to happen, but just understand that if the child ended up wanting to just take those assets, they're theirs. Ultimately, they're not yours anymore. So you need to ensure that the relationship, that the relationship you have with whoever is controlling the trust is good and will remain good in the long term because you are basically, I don't want to say at their mercy, but the trustee controls the account. You don't anymore. So you need to be aware of that. Hey there. Before we get to the rest of the episode, I wanted to take a quick second to tell you about the Wealth Wise Women newsletter. I'll be the first to admit there is no shortage of financial publications out there and there's definitely no shortage of free information and financial advice that you can find on the Internet. But in my opinion, a lot of it misses the mark. It's either incredibly dry or it's full of industry jargon, or it just simply isn't geared towards women. That's why I decided to start the Wealthwise Women Newsletter to provide a source of information that is geared towards women. It's easy to understand without all of the industry jargon and above all, it's what I like to call infottaining. And best of all, it's free. To subscribe, simply go to M. Mcwealthwisewomen.substack.com and enter your email. That's it. Again, that is M. Mcwealthwisewomin.substack.com do. All right, let's get back to the episode. Medicaid also restricts the facilities that you can choose from if you end up needing to go into one. And I need to be very clear, there are huge differences between facilities and there are huge differences between privately funded facilities and Medicaid funded facilities. So the thing I would very highly encourage folks to do is if they are considering setting up a Medicaid asset Protection Trust, go to Medicaid facilities first. Get an understanding of the type of facility that you would be going into if that's the route that you ended up needing to go. So that way you understand what it is the type of treatment that you would be receiving. That's all I'm going to say on that topic. Just make sure you are very well, researched on where you would end up going if you needed care. Additionally, there are effects that this could have on your estate. So many Medicaid programs don't count things like the primary residence in the overall assets of the person who might end up needing Medicaid funded long term care. So when you set up a Medicaid asset protection trust, you may not have to put your primary residence in that trust. If that is the case, great, you continue to control the home. But let's say that you ended up needing to go into Medicaid care but your spouse didn't. The home will not have a lien placed on it when Medicaid tries to recover. So let me back up real quick. Many states will try to recover the cost, cost of Medicaid long term care after the person dies. So they will usually go after the estate of the person to try and recoup from the assets of the estate the cost that was incurred for the long term care of that person. This usually starts with the home. So when somebody dies, the state will place a lien on the home. Now the home is exempt if the spouse is still living in that home. But it's important to realize that typically when long term care is needed, it's because the other spouse has already died. So it's a surviving spouse that often has the long term care or goes into a facility. So when they die, if the house wasn't in any type of trust, then a lien could end up being placed on the home. And when the home is perhaps sold by the estate, then the state is going to recover many of the costs that it incurred to care for that person in long term care. So that's just another layer of complexity to understand and realize that even if you are exempting a lot of your assets from being counted so that you qualify for Medicaid, the state is still going to do everything that it can after you die to recoup its losses. So that's another layer of complexity that you need to know about. So I hope that answers some of the questions that people have about these Medicaid asset protection trusts. I do understand some situations in when it would work, but I can't help but argue that there are better options out there. Yes, long term Care insurance is obviously, one way to go, but it's also not necessarily the only other way to go. Self insurance, meaning you pay out of pocket for it, is another way to go about long term care planning. And that's something that you can build into your overall financial plan. You say, all right, if we're both alive, then we're not going to need to enter a facility. One of us will take care of. The other children can certainly come in and help we build that angured plan. All right, but let's say the surviving spouse ended up needing long term care. We'll take a look at their assets and go, okay, you could probably end up self ensuring that this is the effect that it would have on the estate, of the overall estate, and this is the cost, et cetera. So that is something that fits into long term planning. When we create a financial plan, again, we don't just look at numbers. We look at things like, well, what happens if you needed long term care? Could you afford to pay for it out of pocket? If not, what are options that exist? Because I kind of view Medicaid Asset Protection Trust as a possible worst case scenario. Instead, I would rather explore every other option that might be available. So if you have questions about that, please go to visit withm.com. book a time on my calendar. I'd love to discuss how we might be able to help you with financial planning and long term care planning. That being said, take care and I'll see you next week.