Radio Interview of Attorney John R. Frazier by Attorney Joseph Pippen on four trusts commonly used in Medicaid planning
Attorney Pippen:
Okay. We have Attorney John Frazier on the line. John is a Medicaid attorney, VA attorney, and he calls with the Medicaid tip of the week. John, good morning.
Attorney Frazier:
Hey Joe, how are you doing today?
Attorney Pippen:
I’m doing great. And you?
Attorney Frazier:
Doing great.
Attorney Pippen:
So John, what are we talking about today?
Attorney Frazier:
Today I’m going to talk about the four trusts that I use in my Medicaid planning practice. There’s more than four trusts commonly used in Medicaid planning, but these are the four that I use in my practice. The first one is called a qualified income trust. The state of Florida is classified as what is called an income cap state, and this year the income limit for Medicaid is $2,382 a month. So that means that someone in a nursing facility has $3,000 a month in social security and pension. They must establish what is called a qualified income trust in order to obtain Medicaid. And I would say about 25% of my clients are over that income limit. So we do quite a large number of those. We usually do several each week. The next trust is called a special needs pooled trust. Now, both the qualified income trust and the special needs pooled trust are authorized under a federal statute called OBRA ’93, or the Omnibus Budget Reconciliation Act of ’93.
Therefore, these four trusts commonly used in Medicaid planning have been around for decades. The special needs pooled trust can be used both as an income trust and an asset protection trust. Also, under this federal statute, both of these trusts have what is called Medicaid payback. So if there’s any balance left in these trusts when the Medicaid recipient passes away, the state of Florida has a claim on that money, and that money is generally not going to be inherited by the family members. But the only way you can capture Medicaid if you exceed that income cap is to do either the qualified income trust or a special needs pooled trust. The next most frequently used trust that I see in my practice is a revocable living trust. And I know that as part of your practice you do these on a daily basis. It is not specifically a Medicaid asset protection trust, but what it does is it avoids probate when the Medicaid recipient passes away.
This is very, very important if you have real estate, especially if you have rental property because the state of Florida does not recover against non-probate assets. So it’s very, very important to use a vehicle like a revocable living trust in order to avoid probate when the Medicaid recipient passes away. The last trust, which is very infrequently used in my practice, is called a five-year trust. And what this means is you can establish an irrevocable trust and give assets away to that trust. And after five years, those assets are not accounted or included in the five-year look-back if you apply for Medicaid more than five years later. Typically all of my clients need Medicaid within five years, so that is really not a part of my practice for the most part. I’ve only really done one in my entire career. But those are the four trusts commonly used in Medicaid planning that I use in my Medicaid planning practice.
Attorney Pippen:
All right. Well John, I think if you summarize this, you can use estate planning, and also the power of attorney we’ve talked about many times when you call in, is very, very important. But estate planning documents are definitely… There’s something out there to protect assets, to maximize government benefits like Medicaid or VA benefits. And one of these avenues, five-year look-back trust, qualified income trust, revocable trust, and the pooled income trust, and all these other things that are available are what you do every day. And if someone has a loved one that’s in a nursing home or getting ready to go in a nursing home or even a friend they visit that’s in a nursing home, they don’t need to spend down all of their money. They can use one of these planning documents to help them preserve their legacy, preserve their estate, and maximize government benefits.
Hey John, let me do something a little different with you this morning. Can you stay on till like 6:30?
Attorney Frazier:
Yeah, absolutely.
Attorney Pippen:
All right. I’m going to take questions this morning. And some of them might not pertain exactly to what you do, but I want to invite to listeners this morning. If you have a Medicaid, VA type of question, John will be on until 6:30. If you could call the show at 1-800-969-9352, we’ll take your question. Let’s go to Bob in St. Pete. Hey Bob, what can I do for you?
Bob:
My question deals with a Lady Bird deed. And the fact that the person you have on the deed is not a beneficiary, therefore I’m confused as to what happens-
Attorney Pippen:
No, the person that you name on the deed is a beneficiary. So you do it-
Bob:
But what’s it have to do with Medicare?
Attorney Pippen:
That’s a great question for Mr. Frazier because I know some of his clients use the Lady Bird deed as a method to avoid probate. So you basically have a choice of using a living trust or a Lady Bird deed. They both have beneficiaries. And John, you want to comment on the Lady Bird deed in your practice for Medicaid?
Attorney Frazier:
Yes. We see this quite a bit also. This is actually a form of a life estate deed. It’s called an enhanced life estate deed. A nickname for it is called a Lady Bird deed. The reason it’s used in Medicaid planning is that if you set up this type of a deed, it doesn’t create a gifting period or trigger the five-year look-back, however, if you use just a regular life estate deed by adding the beneficiaries on that deed, it causes a gift, a partial interest in that property, thereby creating a disqualification period for Medicaid. So that’s the reason we use that type of deed, and it’s called an enhanced life estate deed or a Lady Bird deed. It’s always going to have beneficiaries on there.
Attorney Pippen:
Yeah. Bob, your question… Yeah. Go ahead.
Bob:
I have property in New Jersey. Can you prepare a living trust for property in another state?
Attorney Pippen:
I can prepare living trusts or a deed from another state-
Bob:
For property in New Jersey-
Attorney Pippen:
Let’s do this. You talk, and then I talk. When I finish, you talk. Because you keep overriding me.
Bob:
Okay.
Attorney Pippen:
The answer to the question is yes, I can create a living trust. I can not do the deed in New Jersey to the trust, but what we do is just help you find an attorney that can do the deed. I’m licensed in Florida, so I can do a living trust. I could hold property in all 50 states, I just can’t do the deeds in these other states where I don’t have a license.
Bob:
What is the deed? What do you mean by the deed? Deed to the property.
Attorney Pippen:
A deed. Yes, sir. You usually do a quick claim deed.
Bob:
Oh, so you do a quick claim deed. I can do a quick claim deed from my Jersey property into your living trust. Is that correct?
Attorney Pippen:
Yes, sir.
Bob:
Oh. All right. Well, I think… And does that get around Medicare? I don’t have any nursing home insurance. I’m 81 years old.
Attorney Pippen:
Well, the whole Medicaid planning process is a little bit different process. So what Mr. Frazier would do, or a Medicaid attorney would do, is to orchestrate the planning of how you qualify in all of those trusts. He mentioned the qualified income trust, the irrevocable trust, the revocable trust, and all these things that could be used. He would orchestrate which one of those four trusts commonly used in Medicaid planning and even others would be best suited. And some of his planning which he didn’t talk about today, maybe we’ve talked about it before, is you can do rental properties as a way to qualify for Medicaid and put those in a trust. So your question is, putting the property in the trust doesn’t necessarily automatically qualify you for Medicaid. It depends on what the property is, what you do with the property.
Homestead is a non-countable asset that can be put in a trust, for example. Since you’re not really interested in this right now because you’re not going into a nursing home, a lot of this planning is done just shortly before a person goes into the nursing home.
Bob:
Oh, I see. Oh. There’s no lookback period?
Attorney Pippen:
It depends on what the asset is and whether it’s homestead or not. John, go ahead and give us your phone number if Bob wants to talk to you.
Attorney Frazier:
The office number is 727-586-3306, extension 104. My cell phone is 727-748-5374.
Bob:
All right. Well, you know what? I won’t take up any more of Joe’s time, so I’ll give you a call.
Attorney Pippen:
That’d be great, Bob. Sure, I’ll give out John’s number again.
Bob:
By the way, your show is very good. Your show is very helpful for all of us lay-people. Thank you.
Attorney Pippen:
Thank you. My pleasure. Let’s go to Sarah in Tampa.
Sarah:
Yes. My question is about a house that is in a life estate. Years ago, I quitclaimed to my house as a life estate to my two children. At the time, one of them was a minor. He is now an adult. Can this nullify the life of state quitclaim deed? And if so, how do I go about doing this, and is this something that Attorney Jim at your law firm would do?
Attorney Pippen:
Well, first of all, you did a life estate deed when the child was a minor and now the child is an adult, so I think the life estate deed is still in play. And you still have a beneficiary deed. An attorney would probably have to look at the deed to verify it, but why would you think it would be invalid now?
Sarah:
Because he was a minor when it was executed or recorded.
Attorney Pippen:
No, because the property didn’t vest in him until you die, so the fact that he… If you had died while he was a minor, there would’ve been some issues with guardianship and things of that nature. But now that he is an adult, I think you’re fine. The fact that you did it when he was a minor doesn’t really affect it now because he’s an adult. And if you died and it was done properly, the beneficiary would pass on to him.
Sarah:
Okay, because this is something that I would want to do if it was legal. But you say no?
Attorney Pippen:
An attorney should look at the deed, and I would even be glad to look at the deed to make sure it’s a valid life estate deed. But I think the fact that you did it when he was a minor is not important now that he’s an adult. And if you died, it would pass onto him if it was all done properly.
Sarah:
Okay. I understand. Thank you so much.
Attorney Pippen:
All right, thank you. All right John, we have a couple of minutes. Anything else come to mind that you’d like to share with the audience before the bottom of the hour news break?
Attorney Frazier:
Well, one of the strategies that we use pretty commonly is for individuals, a married couple where you have one spouse in a nursing facility or assisted living facility can be used in either context. Say the spouse owns $1.5 million in countable assets. A lot of people would think, well, someone with those types of assets could never possibly file for Medicaid successfully. The asset limit for the Medicaid applicant is $2,000, for the community spouse, $130,380. So if you have $1.5 million, people would say, “Well, I’m not even going to look into this because there’s just no way.” Well, the reality is that I’ve done probably at least 20 cases over $1 million. I’ve done five cases over $2 million. I’ve actually done one case over $3 million. Therefore, the spousal refusal strategy allows us to protect the assets for the community spouse, the spouse that is not in the nursing facility.
If you don’t use these strategies, the average cost of care is about $9,500 per month. So you’re looking at paying $120,000 or more per year. And if your family member’s in a nursing facility for 10 years, that’s your entire estate. So when the person is on Medicaid, their monthly social security and pension will pay for the entire cost of their care. So it’s very, very important to explore these strategies in the event that you have a family member in a nursing facility. Some of these facilities are charging $500 per day or $15,000 a month. And there’s one in Pinellas County charging $17,000 per month. So with those sorts of numbers, you could be paying $200,000 a year for a person’s care. So I don’t think you should think just because you think that you have too many assets that you shouldn’t explore this, because there are some very powerful tools here in Florida to accomplish Medicaid planning not just the four trusts commonly used in Medicaid planning.
Attorney Pippen:
All right, John. Why don’t you give everyone all of your contact information again? And thank you so much for being on the show this morning.
Attorney Frazier:
Absolutely. Thank you for having me. The office number is 727-586-3306, extension 104. My cell phone is 727-748-5374. And my email address is john@attypip.com.
Attorney Pippen:
Thank you so much, Mr. Frazier. You have a great Sunday.
Attorney Frazier:
Okay, you too. Thank you.
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