Hello, I’m Eric Ridley from The Law Office of Eric Ridley in California. Many of my clients often wonder how setting up a trust might affect their eligibility for government programs. It’s a great question, and it’s important to understand the connection. Trusts are legal arrangements where you can place assets under the control of a trustee for the benefit of yourself or others. But how does this impact your access to government benefits like Medicaid or Supplemental Security Income (SSI)? Let’s dive into this topic and clarify the relationship between trusts and your eligibility for these programs.

What Are They and How Do They Work?

First things first, let’s talk about what a trust is. In simple terms, a trust is like a safe where you can keep your assets – money, property, or investments. You give the keys to someone you trust (a trustee), who manages what’s inside for the benefit of the people you choose (beneficiaries). There are different types of trusts, and each has its own rules. For example, some trusts let you change the terms anytime, while others are set in stone once they’re made. Understanding these basics is key to seeing how trusts can affect your eligibility for government programs.

Revocable Trusts and Government Benefits

One common type of trust is a revocable trust, also known as a living trust. This is like a flexible safe – you can put assets in and take them out as you please, and you can change the rules whenever you want. But here’s the catch: because you have this control, the government usually considers the assets in a revocable trust as your own when determining your eligibility for benefits like Medicaid. So, if you’re thinking about a revocable trust, keep in mind how it might affect your access to certain government programs.

Irrevocable Trusts

Now, let’s talk about irrevocable trusts. These are more like locked safes where you give away the keys. Once you set up an irrevocable trust and move assets into it, you can’t just take them back or change the rules. Because of this, assets in an irrevocable trust are often not counted as your own for government benefit eligibility. However, there are strict rules and timing to consider, so it’s not a decision to be made lightly.

Special Needs Trusts

For individuals with disabilities, a special needs trust can be a lifeline. This type of trust allows you to set aside assets for a disabled beneficiary without affecting their eligibility for government programs like Medicaid or SSI. These trusts must be carefully structured to ensure they meet legal requirements and truly benefit the disabled individual. If you’re considering a special needs trust, it’s crucial to get it right.

What is the Five-Year Look-Back Period?

The five-year look-back period is a rule used by Medicaid to examine any asset transfers you made in the five years before applying for Medicaid benefits. It’s like a financial history check to see if you’ve given away or sold assets for less than their value. Why does this matter? Medicaid is a need-based program, and this rule helps ensure that only those who genuinely need financial assistance for long-term care receive it.

Why Does Medicaid Check the Last Five Years?

Medicaid looks back five years because it wants to prevent people from reducing their assets on purpose just to qualify for benefits. Let’s say you have a nice chunk of savings or a second home. If you could just give these away right before applying for Medicaid, everyone would do it to get free long-term care. So, this look-back period is there to discourage such practices.

What Happens If You Violate the Look-Back Period?

If Medicaid finds that you’ve transferred assets for less than fair market value during this period, you could be penalized. This doesn’t mean you’ll be fined; instead, Medicaid will delay your eligibility for benefits. The length of this penalty period depends on how much you transferred and the average cost of long-term care in your area.

Planning Your Estate and Medicaid Strategy

Understanding the five-year look-back period is vital for estate and Medicaid planning. If you think you might need Medicaid for long-term care in the future, it’s wise to start planning early. This way, you can structure your assets in a way that aligns with Medicaid rules and your personal needs.

Reach Out for Personalized Guidance

Going through the world of trusts and government benefits can be tricky, but you don’t have to do it alone. I’m here to help make sense of it all and find the best path for you. If you’d like to learn more, I’d be happy to talk to you about it. Just reach out. I don’t bite, and your consultation is free. Call me today at (805) 307-7668 or contact me online for a free initial strategy session and get the help you deserve.