Medicaid Qualifying Trusts

The Medicaid Qualifying Trust is an income-only, non-discretionary “subtrust” of a Revocable Living Trust.

It must be funded on a timely basis during the trust grantor’s lifetime to be effective.

ASSET PROTECTION STRATEGIES do not come with ironclad guarantees.  However, properly crafted language in a trust can utilize what is currently available under law to help protect (to the extent possible) certain assets from a legal judgment arising from a lawsuit and/or a Medicaid “spend down”.  The FAPT can be applied in two asset protection planning areas – (i) a “non-reversionary” (Qualified) Personal Residence Trust (QPRT) and (ii) a Medicaid Qualifying Trust (MQT).

A non-reversionary (Qualified) Personal Residence Trust (PRT) incorporates the asset protection benefits of a reciprocating (or reversionary) Qualified Personal Residence Trust, but without the “estate freeze” strategy associated with that trust.  Therefore, the value of the residence and/or any other assets transferred to the FAPT will be in the estate of the grantor for transfer tax purposes, and thus receive a full step-up in basis at the transferor’s decease.

A regular Medicaid Qualifying Trust (MQT) utilizes the beneficial terms codified under the Consolidated Omnibus Budget Reduction Act (COBRA) of June 1, 1986 to help avoid a spend-down in the event of a long-term nursing home stay.  (Under normal circumstances, an institutionalized person’s estate will be spent down until he becomes “legally indigent” [impoverished] for purposes of qualifying for Medicaid; only at that point will Medicaid intervene and pay for the occupant’s nursing home costs.)

Although the FAPT can function as both a (non-reversionary) QPRT and a MQT, a long-term nursing home occupant cannot qualify unconditionally for Medicaid if gifts were made to the FAPT less than 60 monthsfrom his Medicaid application date.  In other words, to the extent that a particular gift was made to the FAPT, that gift will still be deemed as an available resource to spend down for nursing home costs – to the extent of the remaining period of the 60-month term from the date that the asset was transferred to the FAPT.