Living Trust- The Advantages and the Risks to Someone in Need of Medicaid/Long Term Care

A living trust, also known as a revocable trust or a family trust, is a trust you establish during your lifetime that can be modified or revoked at any time. One of the benefits of a living trust is probate avoidance; that is upon your death, property in the trust will be transferred to the named beneficiaries outside of probate court per the terms of the trust agreement.

Another benefit of a living trust that many may not be as familiar with is that it allows you to delay the giving of a gift beyond your death. For example, if you wish your son John, who is too young, too immature or debt ridden to receive his inheritance at a later time, incrementally, or upon the discretion of a named trustee, then you can use a living trust to accomplish that.

If the same mechanism was put in place in a Last Will and Testament, in what is termed a testamentary trust, the trust would be under the supervision of the probate court, which can be tedious for the trustee and expensive for the trust. Further, if you simply left your son John a bequest in your Last Will and Testament absent the establishment of a testamentary trust, you could not delay distributions or exert any control over the bequest to John after your death.

In the past, a living trust was also a wonderful Medicaid Planning Tool. I won’t bore you with the details, but essentially, a married couple would put their home in a living trust and then apply for Medicaid for the spouse in need of care and as a result, the healthy spouse would be able to keep more money. However, recent Ohio administrative appeal decisions have come out that not only don’t allow the healthy spouse to have the financial advantage that the planning tool was intended to create, but some punish the couple for having the home in the trust at all. These decisions do this by treating the transfer out of the trust like an improper transfer, a transfer that a couple must make in order to ensure that the house is exempt and the spouse in need of care qualifies for Medicaid. This is very bad news for the couple as a finding of an improper transfer means the spouse in need of care won’t have the benefit of Medicaid for a period of time.

If you have your home, as many do, in a living trust and there is a possibility of the need for long term care/Medicaid in the future, you should consider consulting with an attorney to discuss your planning options.