Many of our clients are legitimately concerned about what will happen to their homes and their assets if they need to go into a nursing home. They have heard of the five-year lookback related to Medicaid. Often, they show up at our office believing they will be advised to transfer their homes and/or their assets to their children in order to prevent the government from seizing them or forcing them to pay for their own care.

However, transferring a home or other assets to your children is often not a good idea; it’s usually a much better plan to transfer your home (and sometimes some of your assets) into a Medicaid Asset Protection Trust.

What most people don’t realize is that the five-year lookback is not the only consideration in making outright transfers of assets to children.

First, when you transfer money to a child, that money is no longer yours, and it is unprotected. We hear it all the time. The client trusts their children and knows they will make sure it’s there for them if they need it. That’s all well and good, but what if something happens to that child? What if that child, heaven forbid:

1. … gets sick?
2. … gets sued?
3. … gets divorced?
4. … dies?

In each of those situations, that money that the client‘s child was holding for them is now at risk. If the child becomes ill and needs to apply for Medicaid, those assets are legally hers and are now at risk of loss. If the child dies, those assets may be subject to probate and be given to your child’s beneficiaries (including his or her spouse!) who may not do the things your child would have with those assets. If the child gets divorced or sued, again, since those assets are legally your child’s, they are at risk of being completely lost and irretrievable.

In most of these situations, the client has no recourse and no way to get the money back. Despite this, if the client needs nursing home care, Medicaid will assess a penalty period based on the amount of assets transferred and will not pay for care during that time period. This leaves the client in a seriously bad situation, potentially unable to get the care they desperately need.

All of the problems just mentioned can be avoided through the use of a Medicaid Asset Protection Trust. The basic concept is that the client transfers assets to a trustee, usually one or more of their children, who holds those assets as a Trustee of the trust. Thus, the assets are not considered to be the property of the child. If the Trustee gets sick, gets sued, gets divorced, or dies, another Trustee is can take over, and the assets remain in the trust, protected from the issues of the child.

In New York, current law permits for the client setting up an irrevocable trust to retain the right to change the Trustee and the beneficiaries. Not all law firms give the client these powers, but when they do, it allows the client to maintain a much more comfortable level of control while still safeguarding them against Medicaid if they need long-term care services and depletion or seizure if anything happens to their child.

If you’re interested in protecting and safeguarding your assets no matter what happens to you or your children, consider speaking with one of our qualified elder law attorneys about an irrevocable Medicaid Asset Protection Trust today.