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Proceed with caution when it comes to estate planning and Medicaid

When it comes to planning for their long-term care, many people envision having to rely on Medicaid benefits. While this certainly makes good sense, it's nevertheless important for those in this situation to understand that the decisions they make concerning estate planning can have an impact on their eligibility for these benefits.

In particular, the decision to create a trust -- an estate planning tool with numerous benefits -- must be undertaken with a considerable degree of caution.      

In general, the many different types of trusts can be divided into two main categories: revocable and irrevocable.

In the former, the person who creates the trust (i.e., the trustor) can access the trust principal, meaning the assets used to fund the trust, and otherwise maintains a significant degree of control over the trust, including whether it should be amended or even rescinded.

In the latter, the trustor cannot access the trust principal and relinquishes all control over the trust to the named trustee.

This distinction matters for the purposes of Medicaid eligibility, as your objective of protecting and preserving your assets may be jeopardized if you utilize a revocable trust. That's because Medicaid is concerned that you could essentially double-dip, meaning you could not only potentially receive government benefits, but also amend the trust terms to make a distribution back to yourself. As such, Medicaid benefits will be denied until all of the assets held in the revocable trust are used.

As far as an irrevocable trust is concerned, however, Medicaid does not count it against you in terms of eligibility given the relative absence of control and the inability to double-dip. What this means is that not only would you have access to much needed benefits, but that you would also be able to pass down assets to your heirs.   

As you can plainly see, this is a complex legal matter. As such, anyone with questions or concerns should seriously consider meeting with an experienced legal professional.

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