Living Trusts and Medicaid

Does a Trust Protect My Assets From Medicaid?

Consider this hypothetical: Five years ago, Mary, a widow, prepares a revocable living trust, placing all of her assets into this trust.  Mary is the sole beneficiary during her own lifetime.  She names herself as trustee during her lifetime and legal capacity, and her daughter Susan as Successor Trustee, in the event of death or legal incapacity.

Mary subsequently develops alzheimers and other sever disabilities that render her legally incapacitated and requiring skilled nursing facility care. Her daughter, Susan, seeks to apply for Medicaid benefits for Mary in order to pay for the high costs of the skilled nursing facility. On the application Susan leaves off the assets of the trust, believing that the trust protects those assets from being attached by Medicaid. Is she correct?

No, Susan is not correct however she is not alone in her misconception; this mistake is frequently made by citizens when applying for this needs based program.   A Revocable Living Trust, by itself, does nothing to protect assets from Medicaid claims or liens.  In fact, the trust will be considered an available resource and must be spent down before Mary will be eligible for Medicaid benefits. For example, if the trust contained $60,000 in assets, this amount must be spent down to less than $2,000 (assuming no other assets) before Medicaid will step in.