Use a Trust to Avoid Probate

Common trusts to avoid probate are called "living" or "inter vivos" trusts.  A trust never dies, thus it is not subject to probate.  Most arrangements make the trust the owner of the property with the original owners as a trustees and beneficiaries.  Thus the property reverts to the estate at death.  Most people initiates these trusts to avoid probate.  Assets in these trusts, other than a primary residence, are transparent to Medicaid.  These trust assets are subject to Medicaid spend down rules.

The trust can be used in states where Medicaid recovery only uses primary residences passing through probate as being subject to recovery  However, a growing number of states do not recognize these arrangements to avoid probate estate recovery and go after primary residences in revocable trusts regardless  of ownership.

To do it right for these states requires an irrevocable trust with no life interest, set up five years or more before a Medicaid claim Very few people are willing to do these kinds of trusts.  Some people also include a so called "life interest' in property in arrangements where property is gifted or in irrevocable trusts.  The life interest gives them use of the property until their death even though they don't own it.  Medicaid in many states does not recognize life interest and the property is considered to be in the ownership of the person who gifted it and subject to look back rules and recovery.

We have already discussed the moral implicagtions of using Medicaid planning strategies for unfairly qualifying for Medicaid and shifting the burden of cost to the taxpayers.  New look back rules under the Deficit Reduction Act have effectively done away with gifting strategies used in the past to accelerate eligibility for Medicaid.  This does not mean that gifts cannot be used, but planning must be done many years in advance.  Under these new circumstances the whole concept of gifting in order to qualify for Medicaid probably makes little sense.