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     E) Asset Protection Sub-Trust (Cont.)


The primary purpose of this trust is to allow the estate of a grantor, who has been institutionalized into a long-term nursing facility, avoid a spend-down because of nursing home costs. In other words, its purpose is to help the grantor qualify for Medicaid (when institutionalized) and thus preserve his estate for his heirs. Under normal circumstances, an institutionalized person’s estate will be spent down until he becomes “indigent” for purposes of qualifying for Medicaid (or he will qualify if he is already indigent when entering the nursing home). At that point, Medicaid funds will be used to pay for his stay at the nursing home.

If a person gives away his assets in contemplation of entering a long-term care facility, he will not qualify for Medicaid if the gift(s) was made, outright, within 36 months of the application. So, the gift must be made, for Medicaid qualifying purposes, beyond the 36 month period. If the applicant transfers assets into a non-discretionary, income-only trust beyond a period of 60 months before applying for Medicaid, then, under most circumstances, he may qualify for Medicaid and thus avoid a spend-down of his estate to pay for nursing home costs.

This type of trust planning allows the parent to “give away” assets in contemplation of a future nursing home occupancy and yet receive lifetime income (only) distribution benefits from the gifted assets. That is a better scenario than an outright gift (outside of a trust) where no benefit, whatsoever, can positively be retained. As mentioned above, regarding Special Needs Trusts, this is a best-effort-only planning tool as certain local or state agencies may not agree with the federal stipulations of this type of trust. Nevertheless, the potential of its success creates a way for the patriarch or matriarch to make a legitimate, good faith effort to optimize preservation planning for the family estate.

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