How can I protect my home if I go into a nursing home or long term care facility?

Medicaid planning, also known as MassHealth planning in Massachusetts, is a controversial topic because it involves depriving yourself of an asset so you can be eligible for government benefits and therefore protect the asset for the benefit of your future heirs. Otherwise, if you went into a nursing home, your assets would generally need to be spent down and your family would only get what remains after all your medical expenses are paid for.

There are exceptions to this rule like the spousal exemption and the child caretaker exemption, but if those options don’t satisfy your concerns then other masshealth planning strategies may come into play.

To be clear, Masshealth planning is typically only recommended in extreme circumstances where the client has relatively little assets besides their primary residence and wants to ensure that the home passes onto their children without risk of estate recovery or a lien being placed on the home. 

If you fall into that category, then you may be interested in a Medicaid trust - one of the most common solutions for clients in this scenario.

What is a Medicaid trust?

A Medicaid trust is a type of irrevocable trust (one that cannot be changed), which clearly restricts any possible way for the donor of the trust (also known as grantor or settlor) any access to the principal of the asset placed in trust. This restriction is known as the “any circumstances” test and if you fail to meet this strict requirement then the trust assets will be countable for MassHealth purposes.

So should I be considering a Medicaid trust?

Before considering a medicaid trust, it’s important to understand that there are no guarantees. Fortunately, thanks to a string of relatively new Massachusetts case law, there appears to be more clarity on what things you may put in the trust document (as of the time of this writing) and what things you should stay clear of. 

Given the time sensitive nature of this article and its legal complexities, it is extremely important that you speak with a competent estate planning attorney before going down this path in order to make sure it’s still a viable option given your individual circumstances. This article is intended only for Massachusetts residents since state laws can vary widely on this topic.

You should also be aware that there are several exceptions/exemptions allowed by state law that may make the use of an irrevocable trust unnecessary in your situation.

With that being said, let’s cover the most recent case that provided much needed clarity in the world of masshealth / Medicaid trusts:

Fournier v. Secretary of Executive Office of Health & Human Services

This recent case (as of 2021) was a huge win for Medicaid trusts because it decided whether a donor could, during her lifetime, use a limited power of appointment to appoint all or any portion of the trust principal to a nonprofit or charitable organization over which she had no controlling interest. Keep in mind that if the decision went against the plaintiff, it could have broken hundreds if not thousands of irrevocable Medicaid trusts (and probably would have led to many malpractice lawsuits). However, fortunately for many attorneys and their clients, the Massachusetts Supreme Judicial Court held that the special power in the trust neither intended for nor permitted the donor to exercise her limited power of appointment for her own benefit, as contemplated by MassHealth. In other words, the trust isn’t broken and still works with this specific power in place.

So what does this mean for you? Under current tax law, the donor can place their real estate in trust, and include a carefully crafted power that allows the property to get a step up in cost basis at the time of the donor’s death without making the trust countable for MassHealth purposes. In other words, this one power could save your family hundreds of thousands of dollars in income tax savings when the property is inevitably sold after the donor’s death. 

Main takeaway:

If you are doing a Medicaid trust, ask your attorney about a special limited power of appointment.

In next week’s article, I’ll tell you about the other power you will likely want to have in your trust and the several powers that you should avoid to make sure your Medicaid trust works as it’s intended to.

Want to set up your own estate plan? Give me a call at 781 202 6368, email jlento@perennialtrust.com, or click here to schedule your free personal consultation.

I’m always happy to help,

Joseph M. Lento, J.D.

Your Local Estate Planning Attorney

www.PerennialEstatePlanning.com

477 Main Street

Stoneham, MA 02180