Will Your Client's Medicaid Trust Survive the Move to Florida?

The second option is to transfer ownership of the home into an irrevocable trust for the client’s own benefit. Again, the client retains full rights to occupy and use the home, while removing it from the pool of Medicaid-considered resources. However, if the house is later sold, proceeds must remain in the trust and the client or beneficiary has only the right to income from the trust.

Also, depending on state law, it’s possible that the state could seek reimbursement from the trust after the client has died and no qualified relatives remain living in the residence. Clients must be aware that state-specific laws can affect the validity of a Medicaid trust planning strategy — meaning that clients must reevaluate the terms of their current trust before making the move to Florida.

While in some cases the original trust may continue to be valid under Florida state law, there are state-specific laws that must be respected for the planning strategy to remain in place. Clients considering making the move should be aware that, for example, the ability of individuals to act as fiduciary for estates is more restrictive in Florida than in New York and that specific language that references the Florida statute must be included in the power of attorney.

While these are both valid (and legal) Medicaid planning strategies, they must be executed well in advance for the strategy to work. Medicaid regulations contain a five-year lookback rule. Any transaction will be scrutinized if entered into within the five years prior to the date the client submits a Medicaid application. Any conveyance of assets (including via the trust strategy) could subject the client to a penalty period (assuming that the home was transferred for less than fair market value).

The “penalty” is that no Medicaid benefits will be available during the period when the penalty applies, so that the client will be responsible for funding their own nursing care.

There are exceptions to the rule. If the transfer is to a spouse, or a child who is under 21 years of age or has been certified blind or disabled, no penalty will apply, and the client remains eligible for Medicaid coverage. Similarly, if a sibling has an equity interest in the property, the penalty will not apply if the sibling has resided in the home for at least one year. Adult caretakers who have resided in the home for at least two years while providing care to the client can also receive a gift of the property without triggering the penalty.

Conclusion

Transfers made to protect assets and preserve Medicaid eligibility can have a variety of tax consequences. Before entering any strategy or before moving to different states, it’s always important that the client consult their attorney so that they understand the potential implications of the transaction.