Can a Trust Protect Your Assets From Long-Term Care?

The costs of long-term care can quickly drain a person's current and future assets when ongoing care is needed. In many cases, people have to turn to Medicaid insurance to help with long-term care expenses. Medicaid eligibility guidelines require a person to have limited assets and resources. Different types of trust arrangements can help to protect current and future assets when Medicaid assistance is needed.

Asset Protection

• When considering long-term care costs, asset protection prevents certain assets and resources from being counted towards a person's ability to pay for long-term care costs. Both long-term care insurance and trust arrangements provide a way to protect existing and future assets from the costs of long-term care. Someone who takes out an insurance plan years in advance can reduce some of the costs involved with long-term care, although unexpected or prolonged care needs may exceed insurance coverages. And, while Medicaid insurance can help with remaining long-term care needs and costs, Medicaid limits the amount of assets a person can have. Certain types of trust arrangements allow a person to qualify for Medicaid assistance and protect any assets and income-earning resources, such as investments, investment properties or interest-earning accounts.

Medicaid Requirements

• People needing assistance with covering long-term care costs can apply for help through the Medicaid health insurance program. Medicaid is a federal program that's administered through state governments, so eligibility requirements vary from state to state. Medicaid requirements include a "look-back period" that considers any assets and resources held as countable income. The look-back period for irrevocable trusts is five years, according to EstatePlanningLawFirms, a legal reference website. Irrevocable trusts are considered countable income when a person sets up a trust within five years of applying for Medicaid assistance. When considered as countable income, the amount of the trust counts towards a person's spend-down amount, which translates into out-of-pocket costs. This means Medicaid coverage does not begin until the spend-down amount has been met.

Trust Agreements

• A trust arrangement allows a person to place his assets in an estate that carries certain legal protections. A trust typically assigns a beneficiary to control the estate on behalf of the person who actually owns the assets. Trust arrangements are set up in one of two ways: revocable or irrevocable. Revocable trusts allow the testator to take back his controlling interest in the estate, while irrevocable trusts remain under the control of a beneficiary. Since revocable trusts allow testators to access existing assets, this type of trust would not protect a person's assets from long-term care costs. And although irrevocable trusts do provide the needed level of asset protection, the testator relinquishes all rights of control to any existing or future assets generated by the estate.

Considerations

• People who are unable to afford long-term care insurance or denied coverage might consider a Medicaid Asset Protection Trust arrangement, or MAPT. An MAPT provides a certain level of asset protection while allowing a person to qualify for Medicaid assistance. Just like an irrevocable trust, Medicaid uses a five-year look-back period when considering MAPTs as countable income. An MAPT arrangement requires a person to designate a trustee to control the trust assets. Much like an irrevocable trust, the actual owner of the assets has no control or access to the trust assets. MAPT arrangements are income-only trusts; meaning only income-earning assets are protected. As for Social Security, veterans or disability benefits, these entitlements are not considered countable income, so asset owners can receive these benefit entitlements.