Revocable living trusts are useful in estate planning for many different reasons (avoidance of probate, privacy, quick transition of an on-going business, etc.) but there are only limited situations when they are helpful in planning for long-term care Medicaid which helps pay for nursing home or at-home care in addition to drug costs. Three reasons not to use revocable living trusts are as follows:

  1. If your home is in a Revocable Living Trust, it will count as a resource

Long-term care Medicaid is “means-tested”. Certain assets are not countable as a resource. The most common and valuable non-countable resource is an applicant’s homestead. A homestead is non-countable if the equity value is less than $636,000 if the applicant is single. A homestead can have unlimited value if the applicant is married. However, if the homestead is deeded into a revocable living trust, it will count as a resource which would result in Medicaid ineligibility in all cases if the applicant is single and most cases if the applicant is married. However, if the homestead is deeded out of the revocable living trust to the applicant, then it would not count as a resource (although it would be subject to Medicaid estate recovery). Assets in a revocable living trust are generally countable.

  1. If married, countable resources in excess of $2,000 must be transferred to the community spouse within one year

In Texas, it is common for a married couple to create and fund a joint revocable living trust to avoid probate. However, under Texas long-term care Medicaid rules, countable resources in excess of $2,000 must be transferred to the well spouse (known as the “community spouse”) within one year. This is not possible in a joint revocable living trust. There is also the risk of the community spouse’s death within one year resulting in the loss of Medicaid eligibility.

  1. A special needs trust for the benefit of a surviving spouse on Medicaid can only be created in the will of the deceased spouse

Although contingent special needs trusts can be created as a third-party trust for the benefit of children and others, it cannot be created within a revocable living trust for the benefit of a surviving spouse on long-term care Medicaid. See our “Success Story of the Month” to see how to plan for Medicaid retention of eligibility if the community spouse dies first. However, a revocable living trust can be designed for the property to go to probate upon the community spouse’s death.

A revocable living trust can be useful if the Medicaid applicant has either a Ladybird deed or a transfer on death deed (since it avoids a successful Medicaid estate recovery claim) which names the trustee of a revocable living trust as a beneficiary in situations where: (1) there are many beneficiaries who can’t agree on selling, leasing or mortgaging the homestead so one trustee of the trust can make the decision, (2) protection is needed for a disabled beneficiary by having a special needs trust for the disabled beneficiary established within the trust and (3) protection is needed for a beneficiary who is: (a) a minor, (b) a spendthrift, (c) having or could have marital issues, (d) likely to be sued or who has already been sued or (e) an addict. However, other than the exceptions mentioned in this paragraph, revocable living trusts are rarely useful in Medicaid planning.

If interested in learning more about this article or other estate planning, Medicaid and public benefits planning, probate, etc., attend one of our free upcoming virtual or in person Estate Planning Essentials workshops by clicking here or calling 214-720-0102. We make it simple to attend and it is without obligation.