Brief Review Of Florida Medicaid Planning
Irrevocable Medicaid Trusts are used as a tool for Florida Medicaid planning purposes. Because Medicaid planning in general is a federal and state coordinated welfare program, applicants are only allowed to possess a minimum amount of assets and must meet strict income limits. So, the tendency in elder law planning is to attempt to reduce assets and/or income in order qualify. One approach that developed over the years was gifting assets to an irrevocable trust that is designed for Medicaid planning.
Many people believe that irrevocable trusts offer an almost magical benefit when it comes to planning how to pay for long term medical care expenses and qualifying for Medicaid benefits. However, the unfortunate truth is that the Irrevocable Medicaid Trust has a very limited function under todays Medicaid rules, which changed in 1993, and became even more strict after the enactment of the 2005, Deficit Reduction Act .
Florida Asset Protection For Limited Partnerships
The Florida limited partnership has historically been well known in real estate investor circles because it allows one person to control the partnership and other partners to contribute funds and participate in profits . Traditionally, this structure has also placed all of the liability of the general partner for decisions made and actions taken on behalf of the partnership.
An LP is filed in the state of organization, similar to LLCs and corporations, by filing a certificate of limited partnership. The partnership may be governed by a limited partnership agreement in the same way that an operating agreement is utilized for an LLC.
The LP was popular in the 1980s when tax sheltered investments were extremely popular, but all of this changed when President Reagan ushered in changes to the U.S. tax code. The current trend in Florida is to use LLCs instead of limited partnerships because a controlling partner doesnt need to assume unlimited liability and all of the other purposes of a limited partnership may be accomplished by allocating different classes of membership interest in the LLC. LLCs are often much less expensive to file than a limited partnership.
How Medicaid Planning Trusts Protect Assets And Homes From Estate Recovery
What are Medicaid Asset Protection Trusts ?
Medicaid Asset Protection Trusts can be a valuable planning strategy to meet Medicaids asset limit when an applicant has excess assets. Simply stated, these trusts protect a Medicaid applicants assets from being counted for eligibility purposes. MAPTs enable someone who would otherwise be ineligible for Medicaid to become eligible and receive the care they require, be that at home or in a nursing home. Assets in this type of trust are no longer considered owned by the Medicaid applicant. MAPTs also protect assets for ones children and other relatives, which is a win-win for Medicaid applicants and their families. Medicaid Asset Protection Trusts are also called Medicaid Planning Trusts, Medicaid Trusts, or less formally, Home Protection Trusts.
There are many different types of trusts and not all of them are Medicaid compliant. For instance, family trusts, commonly called revocable living trusts, are different from MAPTs. Generally, family trusts are not adequate in protecting money and assets from Medicaid because the language of the trust makes it revocable or allows for money in the trust to be used for the Medicaid applicants long-term care costs. Therefore, assets in this type of trust would have to be spent down to meet Medicaids asset limit in order for one to qualify for Medicaid.
Did You Know?
Why Are Medicaid Asset Protection Trusts Important?
How Do Medicaid Asset Protection Trusts Work?
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Asset Protection Strategies In Florida
The options/strategies that are available for asset protection in Florida are:
So, as a strategic asset protection plan, options 1 7 from the strategies above move from the most common options for average folks at number 1 to the most expensive and least common approach at number 7. While the above are protected classes of assets, there are some classes of assets that offer little or no protection, which are:
Factors That Make An Irrevocable Asset Protection Trust A Good Choice
- The size of your estate your assets should probably exceed $150,000 in creating an irrevocable trust to protect your assets from the high cost of nursing home care.
- Trusted and responsible family member to serve as trustee – very important!
- A desire to leave or preserve a legacy to your family – we would not recommend this type of planning for people who are not trying to protect assets for future generations, for instance
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Do Florida Living Trusts Provide Asset Protection
trust is to avoid guardianship while the trustmaker is alive and to avoid probate after the trustmaker dies. Some people believe that their living trust also provides asset protection.
A living trust is a self-settled trust because the trustmaker is the beneficiary of the trust during the trustmakers lifetime. Therefore, a Florida living trust provides no asset protection for the trustmaker.
What Is An Asset
Before addressing specific methods of Florida asset protection, it is important to get clearer about what is an asset. I define an asset as everything you may own that has value. I also differentiate between income producing and non-income producing assets and this is simply a question of whether the asset is creating income for the owner. An important distinction is if something is not appreciating in value or creating income then perhaps it should not be considered an asset. It is your task to determine what constitutes an asset and thus what warrants asset protection for you.
An income-producing asset may be your ownership in a Florida business or a rental property. An asset can also be personal property such as a stamp collection or an antique car. Other assets may include funds in a bank account or investment account. You get the idea. This is the stuff that generates income and builds your net worth.
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By Step Guide On How To Set Up A Qualified Income Trust
So now that we know the basics of what a QIT is, its time to discuss how to properly set up a QIT. A QIT must be set up properly. Any error can cause the QIT to not be considered a QIT, which could be a very costly issue for the Medicaid applicant. Heres a step by step guide on how to properly set up a QIT:
Top Benefits To Irrevocable Medicaid Trusts
There are a couple of exceptions under the DRA which allow a transfer of assets to an irrevocable trust without a transfer penalty which are as follows.
First party Florida Special Needs Trusts for an individual under the age of 65 will not result in a transfer penalty and will not be deemed a countable asset for determining Medicaid qualification.
Pooled trusts or group trusts that are independently administered for the benefit of anyone regardless or age.
Special needs trusts are used as a supplemental fund and must also be specifically drafted to avoid disqualification from Medicaid and/or SSI benefits.
2. Still a Valuable Strategy for Asset Protection if Plan Ahead
Because asset protection is important in todays litigious society, there is then still a valid purpose for establishing a Medicaid Asset Protection Trust. In my opinion, the value attributes primarily to the Medicaid applicants family rather than the applicant, and in any event, the look-back period is always looming.
3. Still a Viable Estate Planning Tool to Provide for Future Generations
4. Irrevocable Income Only Trusts for Medicaid Can Be a Useful Planning Tool
Oh, and one more reminder, an Florida revocable trust does NOT trigger any look back periods but also does NOT protect assets for purposes of Medicaid qualification.
Steve Gibbs, Esq.
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Talk To Our Fort Walton Beach Trust Legal Counsel
FAPIT can be purchased with the entire Florida Estate Planning Package. It can also be coordinated with your Florida Last Will, Financial Power of Attorney, HealthCare Surrogate, and Living Will. Your Last Will and Testament will need a Florida Pour Over section so that the FAPIT can catch all forgotten assets if needed. Your Estate Plan should be coordinated so that ALL the documents work in Florida.
At Vanover Law Firm P.A, we are committed to helping clients with all of their estate planning needs. We can review your situation and determine how to ensure your assets and interests are fully protected.
What Is A Qualified Income Trust
A Qualified Income Trust is a type of trust established by the federal code that allows an over income Medicaid applicant to qualify for Medicaid income wise. The Qualified Income Trust is typically drafted by a competent elder law attorney and then it is set up at a bank. The easiest way to think about a Qualified Income Trust is that it is a glorified bank account: the Medicaid applicants excess income goes into the Qualified Income Trust each month so that the Medicaid applicant now qualifies for Florida Medicaid income wise.
Any income placed into the Qualified Income Trust does not count toward the Medicaid applicants monthly incomeessentially the income is no longer in the Medicaid applicants name.
Heres an example of how a Qualified Income Trust works here in Florida:
Jimbo is applying for Florida long term Medicaid because he needs to go to a nursing home. Jimbos gross monthly income is $3,000 per month between his pension and his social security. Jimbo is not qualified for Florida long term Medicaid because his $3,000 per month gross income exceeds the $2,349 per month allowed by Florida Medicaid.
In order for Jimbo to qualify for Florida long term Medicaid, his wife meets with a competent Florida elder law attorney and established a Qualified Income Trust. She sets up the Qualified Income Trust at a local bank and places $700 of Jimbos monthly income into the Qualified Income Trust. Jimbo is now qualified income wise for Florida Long term Medicaid.
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Medicaid Asset Protection Trust
Our Florida Probate and Estate Planning lawyers may recommend a Medicaid Asset Protection Trust for you if you:
Are concerned about preserving assets for your spouse or other family members.
May require Medicaid benefits for long-term nursing home care in the future, even if current health is not an issue.
Do not have long-term care insurance, or have not taken any other steps to cover long-term care nursing costs.
Have people you trust, such as adult children, who can serve as Trustee.
A Medicaid Asset Protection Trust is an irrevocable trust. Properly managed and funded, after five years, all of the principal will be deemed an unavailable asset if you apply for Medicaid, and will be preserved for your family.
What If The Grantor Needs Medicaid Within Five Years
Certainly, we have to consider the possibility of a sudden or unexpected health crises. Many of my clients are concerned about what would happen if they need Medicaid in two three of four years?
First, my advice would be different on a case-by-case basis. If, for example, only a year had passed, and my client had a sudden stroke that required skilled nursing home care, I would then likely advise dissolving the trust. If the grantor, trustee and beneficiary agree – there are mechanisms that will allow the irrevocable trust to be revoked. Of course, then the assets would be returned to the eventual medicaid applicant and alternative medicaid planning strategies would need to be utilized.
If, on the other hand, four years and ten months had passed, and my client simply needed home health care hours, I might encourage the beneficiaries to privately pay for their parent’s care for two months to run down the clock. Every situation is different, but there are always solutions.
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Florida Asset Protection And Irrevocable Trusts
There are big differences between a Florida revocable trust vs. an irrevocable trust in Florida. It is important to remember the important distinction that a Florida revocable living trust offers the trustmaker no asset protection from creditors, whereas a Florida irrevocable trust can offer this protection. However, although there is NO asset protection from creditors for the trustmakers of a revocable living trust, a Florida revocable living trusts DOES offer asset protection for beneficiaries upon the death of the last surviving trustmaker because the revocable living trust becomes vested and irrevocable upon that death.
The genre of Florida trusts that are irrevocable and thus asset protected when they are established include the following types of trusts:
The thing to know about Florida irrevocable trusts in the above list is that they are all intended for different purposes. Most irrevocable trust plans involve areas of advanced planning, such as estate tax planning in Florida, that requires the assistance of an experienced Florida estate planning attorney.
Wealth replacement trusts in Florida a/k/a irrevocable life insurance trusts , GRATs, GRUTs, and charitable trusts are irrevocable trusts that are often utilized more for tax planning than simple asset protection. However, these types of trusts are irrevocable and thus offer asset protection benefits.
Creating A Medicaid Asset Protection Trust To Protect Your Future
Preparing for the inevitable takes proper planning and thoughtful consideration. This is especially true when it comes to the protection of your assets. This includes protection from creditors, scammers, and medical expenses, ornursing care expenses. This article briefly explains and discusses what a Medicaid Asset Protection Trust is, why it is important, and how it can be used. This type of trust is also called by other names such as a Medicaid Planning trust, Medicaid Trust, or Home Protection Trust.
*This blog is for educational purposes only and should not be considered legal advice. The use of the Paths Law Firm website does not constitute a client-lawyer relationship.
A trust is a legal entity holding title to assets. It is a written document, like a contract, with provisions or rules on how the assets titled in the trust are to be managed and used. Different types of trusts have different provisions and different purposes. Usually, we assign titles to trusts describing the purpose for which theyre being used.
There are many different types of trusts however not all trusts are Medicaid Asset Protection Trusts. Usually, a title for a trust is assigned to describe the overall general purpose of using the trust. This may include an irrevocable life insurance trust, a qualified spousal trust, or even the more common revocable living trust. This title will usually tell an experienced estate planner a lot when reviewing a plan.
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Florida Asset Protection For Corporations
A Florida corporation may be described as a more established and more formal older brother to the Florida LLC. A corporation in Floridais filed similarly to an LLC in that articles of incorporation are filed with the secretary of state in the state of incorporation. Every state provides for the filing of corporations, as it is an important incentive for local businesses as well as an important revenue stream.
For a traditional or large organization, a corporation offers the most advantages due to the tax laws and the ability to sell securities, go public, etc. The downside is that, in many jurisdictions, the corporation is also easier for creditors to attack because corporate stock has traditionally been subject to judgment liens and creditors have historically been able to force the sale of corporate stock in order to satisfy judgments. However, in Florida, the state legislature has undertaken efforts to update corporate laws in order to provide more asset protection for corporations akin to the charging order protection discussed above for LLCs. Adding charging order type protection for corporations in order to make corporations more like LLCs from an asset protection standpoint appears to be a trend in state law changes.
Medicaid Planning And Asset Protection
Most people who require nursing home care or placement in another type of long-term care facility must rely on Medicaid to pay for this type of care. Families who have assets to cover the initial costs may spend thousands of dollars depleting their nest egg and spending their childrens inheritance before finally meeting the qualifications for Medicaid.
Medicaid requires you to have few assets and little income to qualify. In addition, they look at your financial records for the last five years to ensure you did not give assets away to qualify. However, there are some legal ways to plan for this and protect your assets, so you get the care you need and qualify for Medicaid sooner.
This may include:
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How To Legally Protect Your Assets Before The Look Back Period
If you are healthy and not immediately looking to receive long-term care in the immediate future, there are several steps that you can take now to better prepare yourself for the future:
Reach out to us to receive the proper advice and guidance from an elder law attorney, we are here to help you!
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