Your Estate Planning Questions Answered by Harry S. Margolis
Question:
If I name a beneficiary for each of my investment accounts as well as my personal checking and savings accounts, why would I need to fund a trust as Medicaid can't come after my estate anyway?
Response:
You are confusing two issues, eligibility and estate recovery. In most instances, you cannot become eligible for Medicaid (called “MediCal” in California and “MassHealth” in Massachusetts) as long as your countable assets exceed $2,000 (except in California which is eliminating the asset limit as of January 1, 2024).
Virtually all assets other than your home are counted against this limit. Adding beneficiaries to your accounts does not change this since the accounts will still belong to you. So, as long as you have personal checking and savings accounts exceeding $2,000 in value, you will not be eligible for most Medicaid programs, including coverage of nursing home care in all states except California.
Estate recovery aspect
Estate recovery is the obligation of the Medicaid agency to recover its costs from the estates of beneficiaries. Many states only seek such recovery from deceased beneficiaries’ probate estates while others have expanded recovery against both probate and non-probate property.
Naming beneficiaries to your accounts means that they will pass upon your death without going through probate. This would protect them from estate recovery in those states that only seek recovery against probate property. However, it’s somewhat academic if your ownership of the accounts means that you won’t be eligible for Medicaid in the first place.
This is where a trust comes in
It can both protect assets from estate recovery and from having to be spent down to become eligible for Medicaid in the first place. But there are two main trade offs with these Medicaid-planning trusts. First, in order for the trust to work it must provide that you have no access to the trust assets. In other words, it can protect the assets for your beneficiaries at the cost of giving up access yourself.
Second, the act of transferring assets into the trust makes you ineligible for Medicaid for up to five years afterwards, the so-called “lookback” period. So you must either keep out enough funds to cover your needs for those five years or make a gamble that you won’t need the funds for your care and living expenses during that time. These two drawbacks prevent many people from using trusts for Medicaid planning. Or they may use them to shelter their home but not their more liquid savings and investments.
Harry S. Margolis practices elder law, estate and special needs planning at Margolis Bloom & D’Agostino in Wellesley, Massachusetts. He is author of The Baby Boomers Guide to Trusts: Your All-Purpose Estate Planning Tool and answers consumer questions about estate planning issues at www.AskHarry.info. You may post your estate planning questions there.
