What is the Difference Between a Family Wealth Trust and Medicaid Trust?

A Family Wealth Trust can be valuable in asset protection and preserving a family’s legacy.  A Family Wealth Trust allows you to regulate an heir’s access to assets, while providing long-term supervision and management of investments. A Medicaid Trust is a special purpose trust used primarily to shelter an individual’s assets in order to preserve eligibility for Medicaid benefits.  With a Medicaid Trust, you can receive income from the trust, up to the maximum amount allowed by Medicaid, without jeopardizing your eligibility.

Family Wealth Trusts

One great benefit of a family wealth trust is that the assets placed in the trust are permanently removed from the grantor’s estate.  This means, when the grantor passes away, the assets in the Family Wealth Trust will not be considered part of the grantor’s estate.  As such, these assets will not be subject to estate taxes.

The main purpose of asset protection is to shelter the wealth you have managed to  accumulate from unnecessary risks. A Family Wealth Trust can be the most effective and flexible way to provide that protection.  No matter what the value of your estate may be, asset protection should always be included in your estate plan, in order to guarantee your family wealth will be passed on as you see fit.

Medicaid Trusts

Medicaid is a need-based government assistance program that pays for medical services that are determined to be medically necessary.  An individual can only have limited financial resources (up to $2,000) to be eligible for Medicaid. The purpose of Medicaid planning is to prevent the need to exhaust your savings before Medicaid will pay for the cost of long-term care.

Because of the Medicaid law passed in 2005, it is no longer possible to transfer your assets to family members, in order to reduce the value of your estate resources.   This new law created a period of ineligibility for anyone who gives away their assets within five years of applying for Medicaid.  This is where a Medicaid Trust comes in.

A Medicaid Trust is like other irrevocable trusts, however, you can actually be named as the income beneficiary.  Your children or spouse are considered residual beneficiaries.  In other words, you can receive income from the trust, up to the maximum amount allowed by Medicaid, while maintaining your eligibility for benefits.

What is the difference?

Most Revocable Living Trusts are primarily concerned with avoiding probate and estate taxes. A Family Wealth Trust, on the other hand, offers lifetime benefits and protects your wealth for current and future generations.  A Medicaid Trust is meant to protect assets by removing them from your estate in order to establish or maintain eligibility for government benefits.

If you have questions regarding trusts, or any other estate planning needs in Fayetteville, please contact Wilcox Attorneys, PA online, or by calling us at (479) 443-0062.