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Submitted by: John K. Bahr
John K. Bahr is a Financial Advisor with over fifteen years of experience advising clients. John serves the needs of a diverse group of clients, including people over the age of 50, young professional families, affluent high-net-worth individuals, and successful small business owners, among others. His clientele is primarily in the Carolinas and Virginia, but his practice is national in scope.
John K. Bahr
First Vice President, Investments
Raymond James Private Client Group
Most people have read about Medicare or have seen politicians talk about it on television. They know what generally it is and who it covers, but what about Medicaid? Medicaid is a name people recognize but know little about and/or who is eligible to receive it until it’s too late. Medicaid is a joint federal/state program of medical assistance to eligible needy persons. Medicaid services are provided by participating medical providers and reimbursed by the state.
People who are over 65, blind, disabled or the parent of a dependent child, U.S. citizens, permanent resident-aliens, state residents, and financially needy are entitled to Medicaid. But just like other government assistance programs there are limits to what needs Medicaid will actually cover. Thankfully, there are different techniques to satisfy the needs not covered by Medicaid. This includes utilization of a trust to meet the needs not covered by Medicaid without disqualifying the trust beneficiary (the one in need) from eligibility.
There are trusts that can be used and remain exempt for Medicaid purposes. Be aware that federal and state regulations governing these types of trusts are constantly changing and subject to different interpretation by state courts. States may deny Medicaid eligibility for up to 36 months for any uncompensated transfer of assets from a recipient. For trusts, the period can grow to 60 months of ineligibility. A review of each individual’s situation with a skilled attorney and financial planner would be a wise decision.
Trusts established for disabled individuals under age 65 with payback language allows the individual (beneficiary) to be eligible for Medicaid. Upon the death of the beneficiary, the balance in the trust must be used to reimburse (payback) the state for the medical assistance paid. This is a trade off for the state allowing eligibility but then requiring payback.
A pooled trust will allow a beneficiary the use of assets without influencing eligibility. The trust has to be set up and managed by a nonprofit association and it requires all assets to remain in trust upon the death of the beneficiary to benefit others. There is also an exemption for trusts composed solely of pension, social security and other income payable to a handicapped person. The balance of the trust, of course, would reimburse the state upon the death of the beneficiary.
Keep in mind a trust established by an individual when he/she is the beneficiary will disqualify eligibility for Medicaid. However, when a trust is set up by a third person (other than beneficiary or spouse), the rules become a bit more liberal. The establishing of a special needs trust, a discretionary trust or a combination to provide extra funds needed for the care and maintenance of the Medicaid recipient without disqualification is possible. Both of these trusts provide for the special needs of a beneficiary that are not satisfied through Medicaid coverage but differ in method. A special needs trust will stipulate which specific needs are to be satisfied while a discretionary trust will leave it up to the trustee’s discretion which needs of the beneficiary should be met. Each type of trust takes the control of the assets out of the hands of the beneficiary and, therefore, allow eligibility for Medicaid.
The establishment of a trust for the purpose of supplementing Medicaid coverage is a daunting task. In most cases, you can’t have your cake and eat it too. There’s no easy way to retain control of income and principal and still qualify for Medicaid. The use of a trust as a tool to satisfy special needs is possible but should be implemented with the guidance of a skilled attorney and financial planner.
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