✨ Matus Law Group - Celebrating 20 Years ✨

Is an Irrevocable Trust Protected From Medicaid in New Jersey?

Last updated on: February 29, 2024

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, so 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. Call the Matus Law Group for a consultation today at (732) 281-0060 to 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. But seven out of 10 individuals, at some point in their lives, will require some form of long-term care. New Jersey is one of the more expensive states in the nation for nursing home costs. As of 2021, the average cost of nursing home care in New Jersey is $6,650 a month.

Consequently, many people turn to Medicaid to provide critical financial help. But 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 capped at $2,000 and $4,000 for married couples. 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

How an Irrevocable Trust Protects Assets

trust lawyer in New Jersey

A trust is a separate legal entity that can own assets for the benefit of its beneficiaries. An irrevocable trust, like its name suggests, cannot be revoked. A trustee is named who manages it and distributes 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, and these assets 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 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. By having an irrevocable trust, you can be less worried about taxes and can be more assured that your loved ones are taken care of. 

If you are looking to create an irrevocable trust, speaking to an experienced lawyer is very important. A skilled attorney may be able to provide you with the legal advice and knowledge you may need to ensure your family’s future is protected.

Does Putting Your Home in a Trust Protect it from Medicaid?

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. By moving your assets into this trust, you effectively turn 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 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.

Creating an Irrevocable Trust

Navigating Medicaid can be complex, and individuals must be proactive. Medicaid has a “look-back period“ of five years. This ensures 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 your long-term care goals, it’s important to consult with a New Jersey estate planning attorney who has significant experience with Medicaid and Medicaid-qualifying irrevocable trusts. At the Matus Law Group, we can help you make plans for your future while protecting your assets for the ones you love. Call us at (732) 281-0060 or contact us to schedule a consultation.

Christine Matus

Facebook
Twitter
LinkedIn
Pinterest
Christine Matus
Christine Matus

FREE Webinar on Special Needs

Estate & Financial Planning.

4/11 at 4 PM

Call Now Button