ASSET PROTECTION PLANNING: FIVE-YEAR TRUST

To qualify for the Maine Medicaid (MaineCare) long-term care benefit, an applicant must have less than $10,000. Certain assets, like the primary residence, do not count towards this asset limit, but those assets are not protected from estate recovery. Estate recovery is when the State of Maine seeks reimbursement from the MaineCare recipient’s estate after death.

Asset protection strategies often involve gifting assets away to qualify for MaineCare and avoid estate recovery. However, if a MaineCare applicant has made gifts within five years, and if no exceptions apply, there will be a period of ineligibility. This is known as the “five-year lookback.”

A solution that works for many families is a Five-Year Trust (also called an asset protection trust). A Five-Year Trust is specifically designed to plan for the possibility of long-term care. When this type of trust is created and funded five years before long-term care is needed, trust assets are protected under the MaineCare rules. We recommend transferring assets to a Five-Year Trust instead of making outright gifts for these reasons:

  • A Five-Year Trust protects trust assets from any creditors or liabilities a child might face during the parent’s lifetime.
  • There are significant tax benefits to heirs in using a Five-Year Trust, including the step-up in basis upon death and the primary residence exclusion from capital gains tax.
  • A Five-Year Trust preserves the individual’s estate planning goals regarding distribution of the assets upon death and retains some protections for the individual even though he or she is giving up control and ownership of the assets.
  • A Five-Year Trust can also be beneficial in promoting transparency and family harmony.

A Five-Year Trust is a secure and effective method for protecting assets for future generations. Whether this type of trust is the best asset protection strategy depends on the settlor’s goals and priorities, health circumstances, family dynamics, the type of assets to be protected, and any tax implications. Click here to read more about asset protection planning using a Five-Year Trust.

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