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Question:

We set up a revocable trust for my mother in September 2000 for my mother with her and myself as co trustees. There are two assets in this trust: a stock portfolio generating taxable income and a tax deferred annuity.  The tax id for the trust was my mother’s social security number. In 2018, my mother went to an estate planning attorney who prepared a second amendment to the trust which made it irrevocable. I did not realize that an irrevocable trust needs a new tax ID number and I did not apply for one until this year, 2023. The purpose of making the trust irrevocable was to ensure that a portion of her assets went to the care of our recently disabled brother, who is 64 years old. My mother is now 90 years old and in a memory care facility. We have been paying for this care with assets we kept in her name (not in the name of the trust.). We anticipate those assets will run out within two years. I am seeking to understand if my delay in applying for a tax identification number for the irrevocable trust and transferring assets to account with the new tax identifications will impact her lookback should we need to apply for Medicaid.

Response:

No, the tax status of the trust should not affect its Medicaid treatment. They’re two different sets of laws and one should not impact the other. It could, however, make the application process a bit more difficult. The state Medicaid agency is likely to ask for copies of your mother’s tax returns going back five years. If it notices that she reported income on her investments for some of those years, that disappeared for the last two years, it may ask what happened to those investments. You will have to explain that the attribution of the income to your mother for the first few years was made in error.

Also, be aware that it may be possible for your mother to become eligible for Medicaid earlier than you are planning due to your brother’s disability. If the memory care facility accepts Medicaid, your mother can transfer her remaining funds either directly to your brother or into a trust solely for his benefit without incurring a new penalty for making the transfer. Depending on the terms of the existing trust, you may or may not be able to use it for this purpose. (In fact, if the trust qualifies as a so-called “sole benefit” trust for your brother, it will not be subject to a Medicaid lookback period in any case.)

These are the rules that should apply nationwide. However, there can be state-to-state variations. So I recommend that you consult with a local elder law attorney both to confirm that the different tax treatment won’t cause a problem and to see if you might be able to save more of your mother’s money for your brother by accelerating your mother’s eligibility for Medicaid. You can find one at www.elderlawanswers.com.

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