What is a Medicaid trust?

A Medicaid trust or spend down trust is a form of trust designed to preserve the trustor’s assets in anticipation of a possible long-term disability. While modern medicine provides frequent breakthroughs for disabled patients, a long-term disability can be very costly for an estate. In fact, many modern couples may spend down their entire estate paying for medical care during a long-term disability.

How a Medicaid Trust Works

In order to prevent the complete loss of wealth during a disability, some couples are turning to elder law attorneys for assistance. The elder law attorney guides the couple in how to “spend down” their assets by using gifts and trusts. The purpose of this is two-fold.

First, the spending down strives to insulate the disabled person’s assets from the claims of health care providers and government agencies. Second, and more substantially, spending down attempts to impoverish the disabled person so that they may qualify for various types of federal and state assistance such as Supplemental Security Income, In-Home Medical Care Services, In Home Support Services, and Medicaid. Medicaid, unlike Medicare, is not a safety net for elderly people; rather it’s a form of welfare that is unavailable to wealthy couples.

Ethical Issues with a Medicaid Trust

Many attorneys will argue that a Medicaid trust is unethical because it takes advantage of state welfare funds by directing them to those who do not need them. Using a Medicaid trust may also teach the couple’s children and grandchildren that they are entitled to Medicaid benefits as their own personal inheritance insurance. Additionally, many financially stable individuals would not even consider using Medicaid because they desire the best possible medical care and would consider it an insult to be viewed as a welfare case.

On the other side of the argument, many people consider a Medicaid trust to simply be another means of sheltering their wealth, similar to tax shelters and using other trusts to avoid having assets placed into an estate. In fact, many would go so far as to suggest that they are entitled to Medicaid because they paid taxes for it during the duration of their lives.

Alternatives to a Medicaid Trust

There are many alternatives to spending down ones wealth that will not require a person to become impoverished in order to avoid losing a lifetime of savings. The first and most useful option is long-term care insurance. Long-term care insurance is available through certain insurance agencies and is similar to standard health insurance. When policy holders pay a certain premium annually, the long-term care insurance eventually kicks in and pays the remaining balance of the care.

Another alternative to a Medicaid trust is a discretionary disability trust. This form of trust instructs the trustee to only release funds for the care of the person after Medicare and insurance have been completely utilized.

Case Studies: Understanding Medicaid Trusts

Case Study 1: Preserving Assets for Long-Term Care

John and Mary, a retired couple in their 70s, are concerned about the potential cost of long-term care in case one of them experiences a disability. They decide to consult an elder law attorney to create a Medicaid trust. With the attorney’s guidance, John and Mary strategically “spend down” some of their assets by using gifts and trusts.

By doing so, they aim to protect their remaining assets from healthcare provider claims and government agencies while qualifying for Medicaid benefits. This Medicaid trust provides them with peace of mind, knowing they can afford the care they may need without depleting their entire estate.

Case Study 2: Ethical Considerations and Alternatives

Sarah, a financially stable individual in her 60s, is considering setting up a Medicaid trust to safeguard her assets and qualify for Medicaid. However, she is conflicted about the ethical implications of using state welfare funds when she may not truly need them.

Sarah seeks advice from an elder law attorney who presents her with alternatives to consider, such as long-term care insurance or a discretionary disability trust. After carefully evaluating her options, Sarah decides that a discretionary disability trust aligns better with her values and financial goals, providing the care she may need while respecting her self-sufficiency.

Case Study 3: Balancing Asset Protection and Financial Security

Michael and Susan, a married couple in their 50s, are planning for their future healthcare needs. They are concerned about protecting their wealth and assets in case one of them requires long-term care. After consulting with an elder law attorney, Michael and Susan explore the option of a Medicaid trust but feel uneasy about the potential impact on their family’s perception and entitlement to Medicaid benefits.

They opt for long-term care insurance as a more straightforward and transparent way to safeguard their financial security while ensuring quality medical care if needed.