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What could disqualify a trust to be a Medicaid trust?

On Behalf of | Aug 14, 2023 | Trusts

Setting up a Medicaid trust under Massachusetts law takes careful planning, but the effort can be worth it. This kind of trust holds some of your assets so you may reduce the size of your estate and someday qualify for Medicaid.

However, not all trusts qualify as Medicaid trusts. Here are some red flags which could invalidate your trust as a Medicaid trust.

Owning the assets in the trust

The idea behind a Medicaid trust is that you no longer own the assets contained in the trust. So your trust must be irrevocable to qualify. If your trust is a revocable trust, you retain the power to change the trust or even dissolve it.

You serve as trustee

Like any trust, your Medicaid trust should have a trustee to manage it. However, you personally cannot act as trustee. In fact, your spouse is also not eligible to be the trustee. This is because the IRS would regard the trust as a grantor trust, which would be a revocable trust that you could control. Other family members may qualify to be your trustee, however.

An irrevocable trust that is a grantor trust

While a Medicaid trust should be irrevocable, some irrevocable trusts still qualify as grantor trusts, which may disqualify them as Medicaid trusts. For instance, the IRS explains that someone may create an irrevocable trust as an intentionally defective grantor trust, meaning it counts as irrevocable for estate tax purposes but as a grantor trust for income tax purposes.

With a proper understanding of how to limit your control over a trust, you stand a better chance of crafting a qualifying Medicaid trust.


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