Does a Revocable Trust Protect Assets from Medicaid in Illinois?

When protecting your assets while planning for future care needs, it’s easy to see why many people in Illinois turn to revocable trusts.

At Woods & Bates, P.C., we’ve helped countless individuals understand and maneuver through the world of estate planning, ensuring everything is in order regarding Medicaid planning.

One common misconception that comes up repeatedly is that a revocable trust can shield your assets from Medicaid. Let’s break down what this really means, and what alternatives you might want to consider.

What Is a Revocable Trust?

Simply put, a revocable trust is a legal arrangement that allows you (the grantor) to retain control of your assets during your lifetime. You can move assets in and out of the trust, change its terms, or even revoke it entirely.

A common reason for setting up a revocable trust is to avoid probate, which can be a lengthy and expensive process. But while a revocable trust is great for probate avoidance and estate management, some other planning strategies provide better protection against Medicaid.

Imagine, for instance, you set up a revocable trust and transfer your home into it. As long as you’re alive, you maintain control over the home, deciding what happens to it. You can sell it, live in it, or even remove it from the trust.

This flexibility is what makes revocable trusts so attractive for many people who want to maintain control over their assets while they’re still alive.

Medicaid Eligibility and Asset Limits in Illinois

Medicaid is a crucial safety net for individuals who need long-term care, whether it’s in a nursing home or through other services.

In Illinois, Medicaid has strict financial eligibility requirements, including an asset limit. Until May 12, 2023, a single person could only have up to $2,000 in countable assets to qualify for Medicaid. However, since that date, the asset limit has increased to $17,500.

For married couples, the spouse not seeking Medicaid can retain more, but there are still limits.

One thing that often trips people up is the Medicaid “look-back period.” In Illinois, this is a five-year window during which Medicaid will review any transfers of assets.

If you’ve transferred assets to a trust or given them away during this period, it can result in penalties or a delay in Medicaid eligibility. It’s essential to keep this in mind if you’re thinking about how to manage your assets as you age.

Why a Revocable Trust Does Not Protect Assets from Medicaid

The main point here is that Medicaid considers assets in a revocable trust to be countable. Since you maintain control over the trust and can access those assets whenever you want, Medicaid looks at them as part of your estate.

This means that if you’re applying for Medicaid, they will count the assets in your revocable trust when determining your eligibility for benefits. In other words, your trust won’t protect those assets from being used to pay for your care.

Illinois courts have made it clear that a revocable trust isn’t an effective tool for Medicaid planning. For example, if you were to need long-term care, Medicaid could require that assets in the trust be used to cover your care costs before you could qualify for assistance.

Medicaid Estate Recovery in Illinois

Even after a person passes away, Medicaid can attempt to recover the costs of care through what’s known as the estate recovery program. In Illinois, the state can go after assets in a revocable trust to recoup Medicaid expenses.

The Omnibus Budget Reconciliation Act of 1993 made it mandatory for states to seek reimbursement from the estates of Medicaid recipients.

And because Illinois is a common law property state, spousal rights and elective share rules can complicate things further, especially when it comes to Medicaid estate recovery.

This means that if you’ve set up a revocable trust in hopes of protecting your assets from Medicaid’s estate recovery program, you may be in for a surprise. The state can still lay claim to the assets in the trust after your death.

Alternatives for Medicaid Planning in Illinois

If you’re serious about protecting your assets from Medicaid, a revocable trust isn’t the right tool for the job. Here are a few alternatives that can help:

Irrevocable Trusts

One option is setting up an irrevocable trust, specifically a Medicaid Asset Protection Trust (MAPT). Unlike a revocable trust, an irrevocable trust takes control of your assets away from you, which is why Medicaid doesn’t count those assets toward your eligibility. The downside is that once assets are placed into the trust, you no longer have control over them.

Long-Term Care Insurance

Long-term care insurance can help pay for nursing home care or other services that Medicaid might otherwise cover. The cost of premiums can vary, and there are limitations to what is covered, but it’s an option worth exploring if you want to preserve your assets.

Spousal Transfers and Gifting

There are some instances where you may be able to transfer assets to your spouse without triggering a Medicaid penalty. Gifting assets is another strategy, but it needs to be done well in advance of the five-year look-back period to avoid penalties.

Need Help with Medicaid Planning in Illinois? Contact Woods & Bates, P.C. Today

At Woods & Bates, P.C., we focus on helping Illinois residents plan for the future while protecting their assets.

If you’re thinking about Medicaid planning, or if you’ve been told a revocable trust will shield your assets, give us a call. We offer both virtual and in-person consultations, making it easy for you to get the help you need, however you prefer.

Call us today at (217) 735-1234 for a free consultation, or contact us using our online form, and let us help you make sure your assets are protected.