Listen to Lawrence…If we add money to an Irrevocable Trust will it affect the Medicaid look-back?

December 15, 2020
Dear clients and friends,
Here is another one of your questions:
My husband and I have a question for Lawrence.
We established an irrevocable Medicaid trust with you over 5 years ago. We put our real estate only in the trust. At this time we would like to add money to the trust. Our question is: Will adding money to the trust at this time have any impact on the real estate as far as the Medicaid 5 year look back period, which we have now passed? We understand any money added at this time will be subject to its own 5-year look back.
When I talked with Lawrence last week I informed him that my husband and I would have a family meeting regarding this. We have decided to add the money to this existing trust but only if adding this money will have no impact on the real estate added 5 years ago when we first established this trust. From what my husband and I have read it doesn’t seem to have any impact on the real estate look back period or Medicaid except for the money itself. Please confirm, thank you.
This is a very common question. Many clients underfund their trusts or accumulate assets after the trust is created. Then one day they realize that they have more assets that they want to protect. Clearly, adding more assets to the trust creates another lookback (5 years for Nursing home Medicaid and 2 ½ years for Community Medicaid) on the new transfers and DOES NOT in any way affect the look back on transfers that had previously been made to the trust. Therefore, if the look back is over on the first transfer, the look back for the second transfer will not taint the first.
I wish that was all I had to say on this subject. However, I rarely advise a client to add a second transfer to a trust when the look back is over on a first transfer. Why? Let’s assume that the client above wants to add $300,000 to their trust. So they write a check for that amount and start the 5-year look back for nursing home Medicaid. Then, one year later they have a stroke and need a nursing home. Of course, they are not eligible for Medicaid at this time because the look back catches the $300,000 transfer. In the past, we would do a partial revocation of the trust to remove the $300,000 from the trust and then proceed to plan B to maximize how much of the $300,000 could be saved (usually between 35-50%). Unfortunately, lately, Medicaid has been taking the position that if you partially revoke the trust for the second transfer then the first transfer is now vulnerable (even if the look back on the first transfer is over).
Therefore, we are now recommending a second trust (or alternative plan) for the second transfer because we can revoke the second trust without jeopardizing the protected assets in the first trust. The downside of this plan is that you need to create a second trust. On the other hand, if you are willing to take the risk that you can get through the second look back without needing Medicaid, then you still may put the second transfer into the first (and now only) trust. Of course, your age and current health will be factors in this decision.
The bottom line is that if you have created an irrevocable Medicaid trust and later want to add to it, PAUSE….. and then let’s talk it out to see what makes sense.
I hope this helps! Please forward this information to your friends and relatives.
As always, please send me your questions. If you are thinking about it, others are probably too, so my answers will no doubt help you and many others.
Let’s stay connected.
Stay safe!