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Testamentary Trusts

Testamentary trusts are trusts created under a will. The Medicaid rules provide a special ‘safe harbor’ for testamentary trusts created by a deceased spouse for the benefit of a surviving spouse.

Unlike a trust created during life for a spouse, the assets of these trusts are treated as available to the Medicaid applicant only to the extent that the trustee has an obligation to pay for the applicant’s support.


The Value of Trusts

The problem with transferring assets is that you have given them away. You no longer control them, and even a trusted child or other relative may lose them. A safer approach is to put them in an irrevocable trust.

Whether trust assets are counted against Medicaid’s resource limits depends on the terms of the trust and who created it.


Is Transferring Assets Against the Law?

You may have heard that transferring assets to achieve Medicaid eligibility is a crime. Is this true?

No. But what about a professional advising someone to engage in asset transfers for Medicaid planning? That is a crime, at least in the statute books. However, it has been ruled to be an unconstitutional violation of the First Amendment. Nevertheless, it remains on the books.


Medicaid Permitted Transfers

While most transfers are penalized with a period of Medicaid ineligibility, certain transfers are exempt from this sanction. Even after entering a nursing home, you may transfer any asset to the following without having to wait out a period of Medicaid ineligibility:


Medicaid’s Asset Transfer Rules

Why not qualify for Medicaid coverage of nursing home care by simply transferring assets out of your name?

Congress does not want you to move into a nursing home on Monday, give all your money to your children (or whomever) on Tuesday, and qualify for Medicaid on Wednesday. So it has imposed restrictions on the ability of people to transfer assets before applying for Medicaid coverage without receiving fair value in return. These restrictions, already severe, were made even harsher by enactment of the DRA.