Episode 220. Cautionary Tales - Irrevocable Trusts and Medicaid

(upbeat music) - Hey there, Legality listeners. This is your host, Jenny Rosell. Today's episode of Legality is the cautionary tales variety. And on these cautionary tales episodes, we normally talk about real life cases, real life clients that are things me or my office have worked on. Or they are things that I think are generally good things to be aware of so that way you don't turn into a cautionary tale on this podcast one day. For today's episode, it is actually a listener request and it is on a topic that I have long dodged because every state does things a bit differently. But I'm gonna try to keep things high level enough. So here's what the listener asked, quote. I would really like you to do an entire episode on using irrevocable trusts in order to qualify for Medicaid long-term care. And even if someone did qualify, are there any decent long-term care centers? What asset levels does this make sense for? A couple million or 10, end quote. And I'm classifying this also as a cautionary tale episode because Medicaid planning is so easy to mess up guys. And so many people do mess up on it. Now, I know what some of you might be thinking, Medicaid, Medicaid planning, that sounds like something only for people without assets, without means. But here is the reality check. Long-term care costs can devastate even substantial family wealth. We are talking about nursing home long-term care expenses that can easily run 100,000 to 150,000 per year and sometimes much more depending on your state and cost of living. So today, we are going to explore some hard questions that many families across this country are grappling with. First, can irrevocable trusts actually help you qualify for Medicaid while protecting assets? Second, if you do qualify for Medicaid, what's the real quality of care you can expect to receive? Third, does this strategy make sense if you have a couple million dollars, 10 million dollars? What about less than a couple million? And perhaps most importantly, what are the trade-offs and risks you need to understand before going down this path? So let's dive in. Up first, can irrevocable trusts actually help you qualify for Medicaid while protecting assets? The short answer here is yes, absolutely. I do it all the time for lots of different clients, including my own mother and father, have exactly the kind of trust I'm gonna be explaining. But there are some critical things that you need to understand before you get too excited. First, let me clear up a huge misconception I hear all the time. If you're sitting there listening to me and thinking, well, I already have a revocable trust, so I'm good. I'm covered. Stop right there. Revocable trusts offer zero, and I mean zero, asset protection when it comes to Medicaid eligibility. Why? Well, it's actually pretty simple. With a revocable trust, you still completely control those assets. You can change the trust terms. You can take money out whenever you want. You can even dissolve the whole thing tomorrow if you really felt like it. And usually in Medicaid's highs, if you control it, you own it, period, and a story. So, irrevocable trusts are a completely different animal. When you put assets into a properly structured irrevocable trust, it kind of reminds me of the saying, you can't have your cake and eat it too. Typically, irrevocable trusts are done for a certain benefit, and usually, those benefits are super cool. Hence why it reminds me of that saying, you can't have your cake and eat it too. Now, with an irrevocable trust, you are going to give up some level of control. And that loss of control is exactly what makes these trusts work for Medicaid, because you do not own or control those assets anymore. But here is where it gets tricky, and I really need you to pay attention to this part. Not just any irrevocable trust is going to work for Medicaid. The trust has to be structured very specifically to comply with your state's Medicaid rules. And here's the kicker. Every state has different requirements about how restrictive the irrevocable trust needs to be. Some states are pretty lenient. They might allow you to still be a beneficiary of the trust, or they might let you retain certain powers. Other states are much stricter. They require you to have virtually no connection to the trust's assets or benefits whatsoever. Some states have very specific rules about what the trust can and cannot distribute, when it can make those distributions, and who is allowed to serve as trustee. It's like a complicated recipe in my brain. You know, like if you miss one ingredient or get the proportions wrong, the whole thing fails. This brings me to probably the most important point I'm going to make in this entire episode. You absolutely must work with an elder law attorney who does Medicaid planning if this is a goal of yours. Not just any estate planning attorney, and I cannot stress this enough. A general estate planning attorney might know how to write a trust. They might be brilliant at wills and basic estate planning, but they likely do not know the intricate and constantly changing Medicaid rules in your specific state. Okay, shifting to question number two, which is if you do qualify for Medicaid, what is the real quality of care you can expect to receive? Now, I was listening to another podcast a few weeks ago, and the hosts, which were a financial advisor who works with high net worth folks, and an attorney who does not do elder law, were discussing the quote low quality of care that people on Medicaid get, end quote. I honestly came about out of my seat because this is my world professionally as an elder law attorney, and not theirs as someone who serves high net worth folks in someone who is not an elder law attorney. A lot of people cannot afford private pay care. The answer to the question that I posed just a second ago, talking about the quality of care, the answer may actually surprise you. The old assumptions about Medicaid care, a lot of them are outdated. Let me paint you a picture of what is happening in the long-term care industry right now. So more and more brand new, beautiful long-term care communities are going up left and right across this country. We are talking about facilities that look like luxury hotels with gorgeous common areas, state of the art fitness centers, beautiful dining rooms, et cetera, et cetera, and here's the thing that might blow your mind. A lot of these facilities are being built primarily for Medicaid residents, not private pay residents, maybe thinking why? Well, it's basic economics folks. The harsh reality is that more people cannot afford private pay long-term care than can afford it. We are talking about costs that easily run eight to 12,000 per month, sometimes much more depending on your state. So middle-class families simply cannot sustain that kind of expense for years and years. So developers and operators looked at the market and said, huh, where's the volume here? Where are the residents going to come from? And the answer is Medicaid. So they are building beautiful facilities designed from the ground up to serve primarily Medicaid residents. Now, let me address another outdated assumption. We all, at least most of us, may remember the days when nursing homes had what they called Medicaid hallways or Medicaid wings. You know, the less desirable rooms, maybe older parts of the building, different amenities for Medicaid versus private pay residents. Guys, those days are long gone and here's why. Federal law no longer allows that kind of discrimination. Facilities that accept Medicaid cannot legally segregate residents based on their payment source. They cannot deny Medicaid residents access to the same amenities and services that private pay residents receive. This is huge. It means that if you are in a facility as a Medicaid resident, you have the legal right to the same level of care, the same quality of room, the same access to activities and services as someone paying 10,000 more or less a month out of pocket privately. Now, I'm not gonna sugarcoat this. There can still be differences between facilities, like long-term care facilities. Some communities are absolutely gorgeous, well run, et cetera, whether you're private pay or Medicaid. Others might be feel more basic across the board, but within any given facility, they cannot treat you differently based on how you're paying for your care. So the quality of care question is not really about Medicaid versus private pay. It is about making sure that you choose the right facility community period. And that is a conversation about location, staffing ratios, activities, overall management, not about your payment source and whether it's Medicaid or private pay. I'm sorry to get on that soapbox, but it's something I'm very passionate about. Now, the third question is, does this strategy make sense if you have a couple million dollars, what about 10 million? Here's the thing. This strategy can absolutely make sense across a wide range of asset levels, even for those with less than one million dollars, but your motivations might be different depending on where you fall on this kind of that financial spectrum. If you've got a couple million dollars or less, you may be looking at this as a pure asset protection strategy, 'cause long-term care costs can easily burn through a significant amount, if not all, especially if both spouses need care. So for you, Medicaid planning might be about preserving something meaningful for your kids or grandchildren instead of watching it all disappear to nursing home bills. Now, if you're on the higher end of that spectrum with maybe close to 10 million dollars or more, you might be thinking, you know what, I actually feel comfortable that I have enough to properly pay for long-term care without worrying about it. And that's totally fair. Maybe protecting assets against long-term care costs is not your primary goal, but here's the thing also. Now, if you don't feel that way, if you're still interested in asset preservation at that level of an estate, these same irrevocable trusts do not have a maximum asset limit. It is not like they are only available for people with a few million dollars or less. Really, it's an available option for anyone that has a goal of protecting assets against long-term care and Medicaid. Now, I do want to address something head-on because I know, I just know I can feel it. Some of you are thinking there are people who feel this strategy is immoral or unethical, that people should not be allowed to do this kind of trust planning to use Medicaid benefits. I'd be remiss if I did not touch on this. Here's the reality. This is perfectly legal and allowed under current law. And it is really no different than people who set up irrevocable trusts for other reasons like estate tax avoidance, asset protection against creditors, et cetera. Different people have different goals and different priorities and that is okay. The Medicaid rules provide these planning opportunities and families are free to use them as part of their overall financial strategy if they want to, and that's their choice. So as we wrap up, remember that when you put assets into an irrevocable trust for Medicaid planning, you are making a fundamental decision about control and flexibility. Remember my saying, if you can't have your cake, you cannot have your cake and eat it too. But some states do allow for more flexible irrevocable trust structures. So at the same time, do not write this strategy off too quickly without exploring your options. And I'll say this until I'm blue in the face. If this is something you want to explore, you absolutely should work with an elder law attorney who knows your state-specific Medicaid rules inside and out. Because done right, this can protect your family's financial legacy. But done wrong, it can be an expensive mistake that provides no protection at all. Alrighty, let's shift to a sneak peek of next week, which we are circling back to the current trends topic where we talk about things that are going on currently that impact my estate and elder law world, or maybe things that I have stumbled across on the news or social media that are just relevant topics to this podcast. So next week, we are going to talk about the dangers of taking advice from online sources, TikTok, LinkedIn, podcasts, without seeking legitimate advice against your exact fact pattern. So that's what next week will be about legalty listeners. Until then, be well and talk soon. (upbeat music) (upbeat music)