Medicaid Planning With A Solely For The Benefit Of Trust

If someone is in need of nursing home level care, and if they don’t have long term care insurance, their assets will be consumed by such care costs at an rate of about $6,300.00 a month, until their assets are almost entirely consumed. However, there are planning techniques which can utilized to help someone qualified for the nursing home Medicaid program, which will help pay for nursing home care costs, without having to lose everything first. One such Medicaid Planning technique which can be utilized by the spouse of a Medicaid applicant is a “Solely for the Benefit Of” Trust (”SBO Trust”).

A SBO Trust is an irrevocable trust that holds any marital assets contributed to it solely for the benefit of the community (non-nursing home) spouse of a nursing home Medicaid applicant. Marital assets transferred into a trust “solely for the benefit of” a community spouse do not create a divestment penalty, as other gifts and transfers can. Assets which would normally be considerd “countable” and prevent a married applicant from qualifying for Medicaid are considered “unavailable” when transferred into a SBO Trust, thus allowing the person to qualify sooner while retaining more assets for their spouse.

The terms of the SBO Trust require the Trustee of the trust to distribute a minimum, annuitized, portion of the trust corpus each year to the community spouse. The trust essentially converts excess “countable assets” into an income stream for the community spouse. If the community spouse dies, any remaining trust assets are distributed to name beneficiaries (i.e. – children, etc).

A SBO Trust is especially useful in protecting non-liquid assets such as real property, stocks, and bonds. However, IRA’s and other retirement plans cannot be transferred into an SBO Trust and must be protected with other Medicaid Planning methods.

The SBO Trust must be irrevocable, in writing, established and funded by either the applicant or by the community spouse after admission to the nursing home, and provide for the distribution of at least an annuitized portion of the trust corpus to the community spouse each year on an “actuarially sound” basis (within the life expectancy of the community spouse). The trustee must also be someone other than the applicant or community spouse (i.e. – a child, an agent named in a power of attorney, etc).

The SBO Trust is an aggressive, but extremely useful, Medicaid Planning technique that can, and must, be utilized at the time nursing home care becomes necessary. Since it cannot be set up in advance, you must leave someone the authority to do this type of planning in a properly prepared Financial Power of Attorney (”FPOA”). Not all FPOAs are created equal, and many fail to grant the necessary powers to do Medicaid Planning, including setting up a SBO Trust. Without a properly prepared FPOA, it may be necessary to petition and appear before a probate court judge to ask for permission to do the planning desired. Consequently, planning becomes much more expensive and there is no guarantee that permission will be granted by the judge.

While our firm assists single and married clients become eligible for nursing home Medicaid without having to lose all of their assets, there is no guarantee that the SBO Trust and other Medicaid planning techniques will be viable options in the future. We, therefore, advocate self responsibility when it comes to planning for long term care. Rather than picking up the yellow pages, our firm can talk to you about the pros and cons of long term care insurance and can recommend a highly qualified long term care insurance specialist to help you evaluate the cost and your options.