Wills vs. Trusts: Part 6 of 8

Previously posted in 2015.

By Christine Steinmetz, J.D., Hotline Attorney

This post is the sixth part of a series regarding wills and trusts.

In our previous posts, we discussed that a will always goes through probate. We also discussed how a trust avoids probate.

As previously discussed, probate administration is the court process to distribute property that is owned by an individual at their death. If an individual does not own any property at death in their name alone, then there is no probate. A revocable grantor trust avoids probate because the assets are transferred into the name of the trust, and you avoid owning any property in your name alone at death, and consequently avoid the need for probate administration.

One question clients often call the Legal Hotline about is whether a revocable grantor trust can shelter a client’s assets for the state Medicaid program and make them eligible for long-term nursing home care. Clients are often surprised to learn that a revocable grantor trust DOES NOT shelter assets for Medicaid eligibility.

Under the state Medicaid rules, a person’s equity in his or her homestead is normally exempt up to $552,000 in 2015. In other words, a person’s homestead is not counted as an asset when applying for Medicaid for long-term care services, such as a nursing home. Medicaid will not cover nursing home care services for those who have home equity above $552,000, however, there are some exceptions. Under the state Medicaid rules, the homestead held in a revocable grantor trust is counted for Medicaid purposes because the trust assets are available to the grantor. The grantor can terminate a revocable grantor trust and can access the trust’s assets at any time. If assets are considered available to the grantor, then they are counted for the state Medicaid program for long-term nursing home care. There is planning that can be done when there is a married couple and the home is titled to a trust; however, you would have to consult with a Medicaid attorney.

The state Medicaid program also has a look back period of five years from the date of the application. Medicaid looks back five years for transfers for less than fair market value and can penalize the applicant. Clients often think that if the homestead is held in a revocable grantor for more than five years, then the trust property is exempt by the state Medicaid program. Client’s again are surprised to learn that this is not true. The key to whether an asset is counted or exempt by Medicaid is whether a person can access the property. In other words, if you, the creator of the trust, has access to the property held in trust, then it is countable. The fact that a homestead has been held in the trust for longer than the 5 year look back period doesn’t make that homestead exempt for the state Medicaid program.

Medicaid rules and planning are very complicated. The information provided above is general information regarding Medicaid. As noted, there are exceptions to the Medicaid rules and the Medicaid rules are constantly changing. Therefore, we strongly recommend that a client consult with an attorney who specializes in Medicaid planning before making any transfers or changes.

In our next post, we will continue our discussion on trusts and Medicaid. If you have questions regarding wills or trusts, please contact the Legal Hotline for Michigan Seniors at 800.347.5297 and our hotline attorneys will be happy to answer your questions.