All trusts are not created equal. Different types of trusts are utilized to satisfy varying objectives. In this post, we will look at revocable living trusts and Medi-Cal trusts, and we will explain the major difference between them.
Revocable Living Trusts and the Medi-Cal Program
A revocable living trust is a trust that you can revoke or rescind. If you choose to do so, you can dissolve the trust, and it would no longer exist. You can also act as the trustee and the beneficiary while you are alive and well, so you have total control every step of the way.
When you create a revocable living trust, you retain incidents of ownership in a legal sense, because you control the trust, and you have the power to revoke it. As a result, they are not protected in any way. If personal resources were to be attached through a legal action, assets in the trust would be fair game.
This ownership reality extends into other realms. Medi-Cal is a government health insurance program. This program is only available to people that can prove that they have significant financial need. In the state of California, the limit on countable assets is $2000 in 2019.
Most seniors will qualify for Medicare coverage when the reach the age of 65. However, Medicare will not pay for living assistance, because it is considered to be custodial care. The Medicare program will pay for convalescent care after an injury or illness, but it will not pay for the type of care that you would receive in a nursing home.
Because of this dynamic, many seniors seek Medi-Cal eligibility toward the latter portion of their lives. To qualify for this need-based program, you must divest yourself of assets. If you were to convey assets into a revocable living trust, they would be counted when Medi-Cal was determining your eligibility, because you would have total and direct control of the assets in the trust.
There are revocable trusts like the living trust, and there are also irrevocable trusts. People use irrevocable trusts when they want to get assets out of their own names for one reason or another. These trusts are used by high net worth individuals that are exposed to estate taxes, and they can also be used for asset protection purposes.
Seniors who want to qualify for Medi-Cal to pay for long-term care sometimes use irrevocable Medi-Cal trusts. With this type of trust, you are surrendering incidents of ownership, because you cannot revoke the trust. As a result, assets that have been conveyed into an irrevocable Medi-Cal trust would not be counted by the Medi-Cal program.
Income-only Medi-Cal trusts are often utilized. With this type of trust, you can continue to draw income from the earnings of the trust, but the principal would not be looked upon as your direct personal property. However, there are income limits that govern Medi-Cal eligibility along with the asset limit, so you would no longer be able to receive this income if you were to gain Medi-Cal eligibility.
There is somewhat of a caveat to the above statement. When someone that is married applies for Medi-Cal to pay for long-term care, the healthy spouse that can still live independently is entitled to certain allowances. One of them is the Medi-Cal Monthly Maintenance Needs Allowance.
This gives the healthy spouse the ability to continue to receive income that was earmarked for the institutionalized spouse if it is necessary to maintain a minimal standard of living. During the current calendar year, the amount of the Monthly Maintenance Needs Allowance is $3161 per month.
If you want to establish a Medi-Cal trust so that you can qualify for coverage to pay for long-term care, you have to be aware of the 30 month look back period. You are penalized, and your eligibility is delayed if you give away assets within five years of the submission of your application.
To explain the interim of the penalty through a simple example, if you gave away enough to pay for three years of nursing home care, your eligibility would be delayed by three years.
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