Washington Medicaid Asset Protection Trusts Washington Medicaid Asset Protection Trusts

A Washington Medicaid Asset Protection Trust is an excellent tool that helps persons seeking Medicaid benefits to preserve assets in order to defer the outrageous cost of nursing home care. Currently (2009), the average monthly nursing home cost of care in Seattle is about $9,000, and this figure is going to go up every year. According to some statistics, the average length of nursing home stay is about 3 years; that means people have to spend over $300,000 for their nursing home care. It is also said that every one out of 7 US residents is diagnosed of Alzheimer’s disease.

Medicaid Planning Using an Irrevocable Trust

The traditional Medicaid planning involves outright transfers of assets to family members or friends to divest their assets and trigger the 5 year look back period or an ineligibility period. However, such a transfers are too risky. For example, you transfer your assets to your child hoping that the child will spend the money for you during the 5 year period that you are not entitled to Medicaid benefits. Even if the child is a very caring child, the child might be in a troubled marriage, or might get involved in a lawsuit or bankruptcy. If that happens, the assets that the child received from you will be subject to attachments by the child’s judgment creditors, divorcing spouses, or a bankruptcy trustee. If this happens you will lose all the assets that you transferred to your child.

There are many more traps for the unwary attorneys if they are not familiar with the trust law, tax law, and asset protection.

A Medicaid Asset Protection Trust assures you that this kind of risk never exists if you establish a Medicaid Asset Protection Trust and transfers your assets to the trust, if the trust provision has the appropriate distribution standard and complies with the trust law. Selecting a wrong trustee, for example, will destroy the asset protection of the trust assets and will subject the assets to creditors’ attachments. Using an interested party (a beneficiary of the trust) as the sole trustee for a discretionary distribution standard (please read my article ‘Does your estate plan really protect your loved ones?’ for the definition of an absolute discretionary distribution standard) might also subject the trust assets to the interested party trustee’s judgment creditors if there is no mechanism to avoid this consequence in the trust agreement. Fortunately, there is a way to avoid this that only skilled trust lawyers can maneuver. There are many more traps for the unwary attorneys if they are not familiar with the trust law, tax law, and asset protection. Even just an issue of “Who can be the sole trustee?” can take hundreds of hours for a trust attorney to learn its complex rules involving asset protection and tax laws. So you need to consult with an attorney who is very much familiar with the trust law and asset protection.

I will explain how you can get the Medicaid benefits without spending down all of your assets to pay for the cost of care before you get entitled to Medicaid benefits.

You can transfer some of your assets (to the extent you feel comfortable giving up your direct control) to a WA Medicaid Asset Protection Trust. The trust must provide that neither income nor principal of the trust assets can be distributed to the trust maker or his/her spouse. If the trust provision allows the trustee to make any distributions to the trust maker or his/her spouse, the entire trust assets will be included in available resources and the trust maker cannot get entitled to Medicaid benefits even after the current look back period (60 months) until all the assets in the trust are exhausted. Therefore, it is imperative that the drafting attorney understands this rule. If properly drafted, after 60 months of establishment of the trust, the assets in the trust will not be considered available resources for the determination of your Medicaid eligibility. The transfer of the assets to the Medicaid Asset Protection Trust is a completed gift for Medicaid purposes, and it is not subject to the state’s estate recovery at the trust maker’s death as long as the trust maker does not retain any prohibited powers over the trust assets. Therefore, Medicaid planning will be required in advance of 5 years prior to Medicaid application.

Use of Trust Protector to Enhance A Trust Maker’s Goal

I am always in favor of providing for Trust Protector in trust agreements that I draft for my clients. Trust protector can have the following powers:

  • Power to remove a trustee
  • Power to appoint successor trustee or trust protector
  • Power to amend scrivener’s errors
  • Power to amend only to comply with changes of laws

As long as there is no express or implied agreement between the trust maker and the beneficiaries on how the distributed trust assets are going to be used, a beneficiary who received a distribution of assets from the trustee can use the assets for whatever purposes she/he likes. It is perfectly acceptable for her/him to spend the money for the trust maker’s cost of care if she wants. The Medicaid rule is very clear on this point. Let’s say the trust maker’s trust protector is his/her best friend, and Child 1 spends all the distributed money for gambling, and Child 2 spends most of the distributed money for her Mom in a nursing home and she brings all sorts of Mom’s favorite snacks and dishes when she visits her. Also, let’s assume that trustee distributes more assets to Child 1 instead of good Child 2. Then Trust Protector can remove the trustee and replace with another trustee. I believe the existence of trust protector immensely enhances the trust maker’s estate planning goal in most situations. Having Trust Protector in a trust will avoid the costly legal expenses to be spent on trying to remove an unreasonable trustee in a costly legal proceeding, etc. I just heard from another attorney that his client has spent $200,000 so far trying to remove an unreasonable trustee, and still the litigation is continuing. This problem would not have occurred if only had the drafting attorney included a provision for trust protector in the trust agreement.

Factors to Consider To Establish A WA Medicaid Asset Protection Trust

Of course, a Medicaid Asset Protection Trust might not be appropriate for some people. You have to go through a cash flow analysis to determine if a Medicaid Asset Protection Trust fits your situation. The following factors will be important in this decision making:

  1. your monthly income;
  2. your monthly expenses;
  3. necessity to use your current assets for living expenses in the near future, possibly converting them to annuity;
  4. your health condition: is it most likely that you will enter a nursing home within 5 years?;
  5. a long term care insurance: can it pay for your cost of care during the 5 year period if you enter a nursing home?
  6. any creditor issues (lawsuits, divorces, bankruptcy, etc.) of your loved ones;
  7. a Medicare supplement.


It is imperative for us to do Medicaid planning ahead of time. We can establish a better Medicaid plan in a non-crisis situation than in a crisis situation. I recommend that you establish an appropriate Medicaid planning prior to the 5 year look back period.

Please contact our office if you would like to discuss the Medicaid Asset Protection Trusts.

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category: Asset Protection, Medicaid Planning

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