Medicaid Trusts and Continuing Care Retirement Communities

I was speaking to a group of prospective residents for a new life plan retirement community (also known as a continuing care retirement community, or CCRC) when a question came up about “Medicaid trusts” and how the existence of one could impact a resident of a CCRC. More specifically, I had finished a discussion about what it means for a CCRC to be Medicaid-certified, and some in the room reacted as if this would not be applicable in their situation because they owned a “Medicaid trust.” This prompted me to want to shed a little light on these types of trusts.

What is a Medicaid trust?

A Medicaid trust, sometimes referred to as a Medicaid qualifying trust, is the term often used to describe an irrevocable trust that can help someone in need of long-term care to qualify for Medicaid while protecting certain assets from being counted in the financial eligibility formula.

Medicaid eligibility is determined by assessing “exempt assets” and “nonexempt assets.” Exempt assets include a car and your home (up to a certain value), cash up to $2,000, and a few other items. Nonexempt assets are basically everything else you own, and they must be used to contribute to care costs before Medicaid will begin to pay.

Mixed views

Setting up such a trust is legal, though some may argue that it is not wholly ethical. (More on that in a moment). The main reason why it is legal is because when someone transfers assets to this type of trust, that person no longer owns the assets or has control over how the money is used. An appointed trustee will be legally responsible to make sure that the funds are managed and used in strict accordance with the terms of the trust.

It is important to know that if you establish such a trust, the assets held within it may not be used for your benefit, and this cannot be undone later — hence the term “irrevocable.” However, you may be permitted to receive the income generated from the trust. In most cases, the assets in the trust are eventually passed to the heirs.

Additionally, any transfer of assets — no matter whether it is to family members, charities, or a trust — will be subjected to the five-year look back period if the transfer was made within five years of the time of application for Medicaid. If the transfer was made within the last five years, then a penalty period will be assessed during which time the applicant will not be eligible for benefits. The greater the amount that was given away, the greater the penalty period.

Despite the above details, establishing such a trust with the primary purpose of utilizing already stretched government assets instead of paying for care with your own funds is considered by many to be morally inappropriate (not to mention that you may limit your options on care facilities). Medicaid eligibility officers would almost certainly tell you that Medicaid eligibility in this context should only come as a byproduct of other legitimate planning, and not just to prevent paying for your own care.

Medicaid trusts and CCRC residents

In order to learn more about how Medicaid trusts might impact a resident of a CCRC, I called my friend Katherine Pearson, a law professor at Pennsylvania State University’s Dickinson’s Law School, and I asked her two questions:

Can a CCRC require that a resident who owns such a trust utilize the funds from this trust in the event that the resident exhausts all personal assets on care (assets held outside of the trust)?
Can a CCRC prevent someone from establishing a Medicaid trust AFTER they move in? This would be akin to a resident giving assets away, which could increase the odds of the resident requiring financial assistance from the community’s endowment or other financial support fund.

It just so happens that Ms. Pearson was going to be at a conference with other elder care attorneys and one of the topics was CCRCs. Therefore, she was kind enough to float my questions among the group to get collective feedback on these topics.

Financial qualification for a CCRC

The consensus among the group was that if the CCRC financially qualifies a resident based solely on other assets and does not include the trust assets in the financial qualification formula, then the trust assets would not be treated as pledged to be spent down before applying for financial support from the community (which would only be cover any additional amounts not covered by Medicaid).

In other words, if the assets held in the trust were not necessary in order to financially qualify for admittance into the CCRC, then it would be hard for a CCRC to make the argument that those assets must be spent down if the resident otherwise exhausts personal assets on care. Legally speaking, this may not be possible anyway as per the terms of the trust. (A full discussion of the various forms such a trust can take is beyond the scope of this article. Be sure to talk with a qualified lawyer to get state-specific advice.)

Contractual considerations

As for the second question — can a CCRC prevent someone from establishing a Medicaid trust AFTER they move in? — it seems there may actually be some restrictions on this.

Of course, a person is free to do what they wish with their money, including transferring it into a trust as part of a comprehensive estate plan. After all, I’m sure there are plenty of residents of CCRCs who create or revise their estate plans. However, transferring assets after moving to a CCRC may ultimately exclude the resident from being eligible for any financial assistance from the community.

Here is the specific language from a CCRC residency contract that is fairly typical of what you might find in other contracts:

“[Retirement community] requires a Confidential Financial Statement be completed within 30 days of executing the Reservation Agreement or Early Acceptance Reservation Agreement and may request that the resident furnish updated financial information periodically after acceptance… [Retirement community] may terminate Agreement if Resident failed to disclose pertinent health or financial information…

… “You agree not to make any gift or other transfer of property for the purpose of evading your obligations under this Agreement or if such gift or transfer would render you unable to meet such obligations within your lifetime…”

Unintended consequences of a Medicaid trust

During my correspondence with Ms. Pearson, she noted that one of her colleagues at the conference astutely pointed out that every time a resident does not pay for his or her own care in a CCRC — instead depending on Medicaid (which pays less than full cost) or the community’s benevolent care — it diminishes the CCRC’s ability to care for all residents. It is therefore inherently wrong if a resident intentionally structures their assets to avoid fulfilling their personal financial obligations to the CCRC.

I would like to think there are no CCRC residents who, despite the contract language and requirements, would intentionally transfer assets in the hopes of qualifying for Medicaid or financial assistance. On the contrary, I’ve actually been told that more often residents are hesitant to ask for financial support even when needed, so I can’t imagine there are many who would do it intentionally, but it is an issue to be cognizant of, both for CCRC prospects and CCRCs’ administrators.

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