The Hughes Law Firm

As I mentioned in my previous blog, giving assets away to a trust that you set up for yourself is probably not the way to go in today’s strict Medicaid world. It’s this type of “self-settled” trust that the Medicaid folks are coming down on hard. Instead, give assets away to your children as a group or to your most trusted child and have that child or your children hold the money for your future needs.

Here’s how it would work. Let’s assume you owned a house worth $200,000 and savings of $200,000. Let’s also assume that you have 4 children. Let’s also assume that all 4 children were pretty darn good, but one of them, Mary, was the most responsible of the group. Give away your house and your savings to Mary. She would then hold what you have given her in her own name for a couple of months. She would then create a trust on her own and transfer the house and the money that you gave her into this new trust. This trust would be held by Mary, as the trustee, with provisions stating that no assets could be transferred out of that trust for either a specific period of time or, perhaps, until your death. When you die, Mary could distribute the assets in equal shares to herself and to her siblings.

Transferring assets from your name directly to a child’s name will cause a Medicaid penalty period, but your plan is to give the assets away and stay out of a nursing home for or five years. After five years, the gift would be invisible to Medicaid. They only ask, when you apply for Medicaid later, if you’ve made any gifts within the last five years. If five years passed when you make application for Medicaid, the gift to Mary would not be “visible.”

You would also answer “no” to the questions of whether or not you are a current beneficiary of a trust. Since Mary set up the trust after she received the gifted property from you, you were not the one responsible for setting up the trust and you’re not currently named as the beneficiary of any trust. In fact, the trust Mary sets up names herself and her siblings as beneficiaries of the trust, not you. You might be given some power to authorize distributions of money out of the trust to your children even though you are not a current beneficiary of that trust by naming you as a special independent trustee with certain powers over the distribution of assets. Stay tuned for more later.

Filed under: Colorado Medicaid, Colorado Trusts by Richard Hughes