What is a Medicaid trust?
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A Medicaid trust or spend down trust is a form of trust designed to preserve the trustor’s assets in anticipation of a possible long-term disability. While modern medicine provides frequent breakthroughs for disabled patients, a long-term disability can be very costly for an estate. In fact, many modern couples may spend down their entire estate paying for medical care during a long-term disability.
How a Medicaid Trust Works
In order to prevent the complete loss of wealth during a disability, some couples are turning to elder law attorneys for assistance. The elder law attorney guides the couple in how to “spend down” their assets by using gifts and trusts. The purpose of this is two-fold.
First, the spending down strives to insulate the disabled person’s assets from the claims of health care providers and government agencies. Second, and more substantially, spending down attempts to impoverish the disabled person so that they may qualify for various types of federal and state assistance such as Supplemental Security Income, In-Home Medical Care Services, In Home Support Services, and Medicaid. Medicaid, unlike Medicare, is not a safety net for elderly people; rather it's a form of welfare that is unavailable to wealthy couples.
Ethical Issues with a Medicaid Trust
Many attorneys will argue that a Medicaid trust is unethical because it takes advantage of state welfare funds by directing them to those who do not need them. Using a Medicaid trust may also teach the couple’s children and grandchildren that they are entitled to Medicaid benefits as their own personal inheritance insurance. Additionally, many financially stable individuals would not even consider using Medicaid because they desire the best possible medical care and would consider it an insult to be viewed as a welfare case.
On the other side of the argument, many people consider a Medicaid trust to simply be another means of sheltering their wealth, similar to tax shelters and using other trusts to avoid having assets placed into an estate. In fact, many would go so far as to suggest that they are entitled to Medicaid because they paid taxes for it during the duration of their lives.
Alternatives to a Medicaid Trust
There are many alternatives to spending down ones wealth that will not require a person to become impoverished in order to avoid losing a lifetime of savings. The first and most useful option is long-term care insurance. Long-term care insurance is available through certain insurance agencies and is similar to standard health insurance. When policy holders pay a certain premium annually, the long-term care insurance eventually kicks in and pays the remaining balance of the care.
Another alternative to a Medicaid trust is a discretionary disability trust. This form of trust instructs the trustee to only release funds for the care of the person after Medicare and insurance have been completely utilized.