Long-term care is one of the most serious concerns of aging individuals in the United States today. And, unfortunately, this care is costly. Medicare does not provide for long-term and nursing home care, but Medicaid can provide an essential lifeline for those who may not have long-term care insurance. Before you take any steps, it is important to speak with a New Jersey trust attorney.
At The Matus Law Group, our experienced New Jersey trust attorneys focus on understanding your personal goals and providing clear, actionable legal advice to secure your legacy and provide peace of mind for your family’s future. Whether you are looking to manage your assets during your lifetime or facilitate a smooth transfer to your beneficiaries, our team can assist in creating trusts tailored to your unique needs. We can also clarify the advantages and disadvantages of setting up an irrevocable trust, helping you to make an informed decision. Contact us today at (732) 785-4453 to schedule a consultation and learn how an irrevocable trust can help in your long-term care plans.
Taking Proactive Measures
Most of us don’t want to think about nursing home care, especially when we are still healthy. Yet, seven out of 10 individuals will require some form of long-term care at some point in their lives. New Jersey is one of the more expensive states in the nation for nursing home costs. In 2024, the average cost of a private room in a New Jersey nursing home was approximately $12,700 per month.
Consequently, many people turn to Medicaid to provide critical financial help. However, Medicaid has very narrow and specific parameters that must be met to be eligible for benefits. Many individuals have too many assets to qualify for these Medicaid benefits and can be left at the last minute paying for long-term care out of pocket instead of leaving it to the ones they love. Fortunately, placing assets in an irrevocable trust can shelter them, so they are no longer countable by Medicaid.
Countable Vs. Non-Countable Assets Under Medicaid
An individual’s income and assets are limited to be eligible for Medicaid benefits for institutional care purposes. Assets for a single person are typically capped at $2,000 and $3,000 for married couples. Moreover, assets that are considered “countable” under this cap are cash, stocks, bonds, savings and checking accounts, and real estate that is not a primary residence.
But, for purposes of Medicaid eligibility, some assets are considered “non-countable” against that cap. These include:
- A primary residence
- Personal belongings
- IRAs and 401(k)s
- Household furniture
- An automobile
- Pre-paid burial services
- Any property held in an irrevocable trust
What Are the Medicaid Look-Back Rules for Irrevocable Trusts?
Medicaid’s look-back rule in New Jersey reviews asset transfers within five years before applying for benefits. Assets moved into an irrevocable trust during this period may trigger penalties, delaying Medicaid eligibility. Since the trust’s principal is inaccessible to the applicant, Medicaid may classify transfers as gifts, affecting eligibility.
How an Irrevocable Trust Protects Assets
A trust is a separate legal entity that can own assets for the benefit of its beneficiaries. An irrevocable trust, as its name suggests, cannot be revoked. A trustee is named to manage it and distribute its assets to the beneficiaries according to the trust agreement.
Assets placed in this trust are protected from the asset qualification criteria of Medicaid as well as from taxes and outside creditors. The maker of the trust, or grantor, is no longer the owner of the assets placed in it, which are now owned by the trust itself. The trust pays its own taxes. Because Medicaid will consider anything that the grantor gains from the trust in the way of income and assets, the grantor or his or her spouse should not be a trustee or beneficiary.
Irrevocable Trusts and Taxes in New Jersey
One key benefit of creating an irrevocable trust is its ability to avoid tax. Because the irrevocable trust owns the assets in the trust, the descendants of the creator of the trust will not have to pay taxes when the creator passes away.
It is also possible for those who create an irrevocable trust to avoid capital gains taxes. This is because assets that belong to the irrevocable trust are not subject to capital gains taxes.
If you create a regular will, your beneficiaries are responsible for paying estate taxes once they inherit your property. In some situations, it can be difficult for the beneficiaries to pay these inheritance taxes. However, you can help ensure your beneficiaries are not subject to the burden of large inheritance taxes by putting your assets in an irrevocable Trust because this type of trust is not subject to taxes. With an irrevocable trust, you can be less worried about taxes and more assured that your loved ones are cared for.
If you are looking to create an irrevocable trust, the guidance of an experienced lawyer can be invaluable. A skilled attorney may be able to provide the legal advice and knowledge you need to protect your family’s future.
Does Putting Your Home in a Trust Protect it from Medicaid?
Placing your home in a properly structured irrevocable trust can protect it from Medicaid estate recovery in New Jersey. The trust must be created at least five years before applying for Medicaid to avoid penalties. Revocable trusts do not offer Medicaid protection since assets remain under the owner’s control.
In detail, a revocable living trust does not provide asset protection from Medicaid since the assets remain under the control of the owner in this type of trust. To safeguard your assets from the spend-down requirement before qualifying for Medicaid, you should consider establishing an irrevocable trust.
When you create an irrevocable trust, you can designate one or more beneficiaries, such as your children, grandchildren, loved ones, or a charitable organization. Moving your assets into this trust effectively turns over ownership rights of the assets to the trust.
Unlike a revocable trust, an irrevocable trust cannot be altered, amended, or terminated after its creation and funding except under specific circumstances. With careful planning, you can help ensure that Medicaid does not count the assets in the irrevocable trust against you.
Protect your assets from Medicaid recovery or the look-back period with the help of a New Jersey trust attorney from The Matus Law Group. While a revocable living trust doesn’t shield your property from Medicaid due to owner control, establishing an irrevocable trust with the guidance of our law firm can offer the protection you need. Contact us for assistance in establishing an irrevocable trust, creating a secure estate plan, and discovering customized options tailored to your specific needs.
| Topic | Details |
|---|---|
| What is an Irrevocable Trust | A separate legal entity that can own assets for the benefit of its beneficiaries. The trust, once established, cannot be revoked. |
| How an Irrevocable Trust Works | A trustee is named who manages the trust and distributes its assets to the beneficiaries according to the trust agreement. The trust pays its own taxes. |
| How an Irrevocable Trust Protects Assets | Assets placed in the trust are protected from taxes and outside creditors. The maker of the trust (grantor) is no longer the owner of the assets placed in it. |
| Role of Trustee and Beneficiaries | The grantor or his/her spouse should not be a trustee or beneficiary. |
| Irrevocable Trusts and Taxes in New Jersey | The trust provides tax benefits. Descendants of the creator of the trust will not have to pay taxes when the creator passes away. Assets belonging to the irrevocable trust are not subject to capital gains taxes. The trust is not subject to estate taxes. |
Medicaid Estate Recovery Avoidance Strategies
Medicaid estate recovery can be a significant concern for recipients who want to preserve their assets for their heirs. In New Jersey, there are several legal strategies to consider that can help safeguard assets from being claimed by the state after their passing.
One effective method is the use of a Medicaid Asset Protection Trust (MAPT). Assets placed in a MAPT are protected because they are no longer considered part of the individual’s estate. This type of trust must be irrevocable, meaning that once the assets are transferred, the individual no longer has control over them. However, they are shielded from estate recovery, allowing beneficiaries to inherit without Medicaid making claims on the estate.
Another strategy involves life estate deeds. With a life estate established, you maintain the right to live in your home until your death, after which the property automatically passes to the named beneficiaries. This arrangement excludes the property from being considered part of your estate for Medicaid recovery purposes.
Additionally, transferring property to a spouse or a caregiver child can provide protection. New Jersey recognizes transfers to a spouse without penalty, thereby allowing the spouse to assume ownership and removing the asset from consideration in Medicaid’s estate recovery process. The caregiver-child exemption is another powerful tool, enabling seniors to transfer their primary residence to an adult child who has provided at least two years of direct care. This transfer ensures the home remains with the child and is not considered for estate recovery.
However, it’s crucial to remember that these strategies could still be subject to Medicaid’s look-back period, potentially affecting eligibility. Given the complexity of Medicaid rules and the importance of careful estate planning, consulting with a knowledgeable New Jersey trust attorney is advised to determine the most suitable approach for your specific situation.
Create an Irrevocable Trust Today with The Matus Law Group
Qualifying for Medicaid can be complex, and individuals must be proactive. Medicaid has a “look-back period“ of five years, which confirms to the agency that the individual has not simply given away assets or developed a trust at the last minute to qualify for Medicaid benefits.
During the look-back period, Medicaid will consider all financial transactions made by the individual during that time. If any of these is in violation of Medicaid eligibility rules, the applicant can be penalized and rendered ineligible for benefits for a period of time.
If you are interested in how an irrevocable trust may help in your long-term care goals, consulting with a skilled New Jersey trust attorney can offer valuable insight and guidance on Medicaid and Medicaid-qualifying irrevocable trusts. At The Matus Law Group, our attorneys can assist you in making plans for your future while protecting your assets for the ones you love. Contact us today at (732) 785-4453 to schedule a consultation.
