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Investment options in Irrevocable trust for assets if need medicaid

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  • Investment options in Irrevocable trust for assets if need medicaid

    Dad has dementia, and is starting to be too much for Mom to be able to care for alone. Mom is 15 yrs younger than dad. We met with an estate/elder attorney in their state (NY), and one of the main things she brought up to protect mom's assets for medicaid to help with dad's home care (and eventually nursing home care) is an irrevocable trust for the assets above the spousal limit (~125,000 in NY). It's my understanding that this type of trust can be used to pay my mom dividends on the growth of assets inside of it, but my mom can not take any principle from it while dad needs medicaid (or in the future if mom needs it).
    My sister and I do not care how much is left in there for our inheritance, we want mom to be able to live without being a burden on us, and dad to get care without being a burden on mom. So instead of a typical VTSAX/vtiax/Vbtlx mix for my mom's money, my thoughts are to guide mom to invest the money that will go into this trust into high dividend stock index and bonds- so mom gets a monthly or quarterly dividend and my sister and I will just inherit whatever's left over when mom dies. They are in a very low tax bracket so the tax on dividends even if short term wont be terrible for mom. She's also the type who always just put money in CDs or bank accounts as opposed to the market. If the trust pays all the dividends to mom, then the trust itself doesn't pay any taxes, correct? Just mom?

    What do you guys think about going 20% VBTLX (total bond index, current yield 1.23 %) 20% VNYTX (NY long term tax exempt fund, current yield 1.72%) 20%VTIAX, and 40% a US fund that tracks dividend stocks index like VDIGX (Dividend growth fund), VDADX (Dividend appreciation index fund), or VHYAX (High Dividend Yield Index fund)?
    Or am I overthinking this too much and can just go with a value tilt 20% VVIAX and 20% VTSAX to round out the 40 % US stocks? The more I'm typing the more I think I'm overthinking this.

    tl;dr- setting up irrevocable income trust for mom's assets. Goal to provide mom dividends since she can't the touch principle. How would you invest in it?
    Last edited by billy; 07-22-2020, 07:47 PM. Reason: elder attorney

  • #2
    I am not sure about NY , but many states have look back periods for trying to get out of medicaid taking assets for care, I live in PA and I think it is 5 years.

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    • #3
      The first step is to determine if you truly want to try using an irrevocable trust to protect assets from Medicaid. The 5 year look back period means that if an irrevocable trust is created to protect assets, the ability of the trust to protect these assets is significantly limited because the assets are countable assets on an application unless they went into the trust more than 5 years prior to applying. This 5 year rule applies in most if not all states. Even among estate planners, Medicaid planning is not always understood well; you may want to have a second opinion on whether a trust will suit your needs; it sounds like you may be too late since he already has dementia. Also, finding a nursing home that takes Medicaid that you want your father in may be difficult to find.

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      • #4
        The basic difference is that Elder Law planningseeks to preserve your income and assets for use while you are alive. ... Estate planning is primarily concerned with implementing your wishes and distributing your assets after you pass on, in the most efficient and tax advantaged way.

        +1 on getting a second opinion in your state. Board certified in elder law would be prudent. There are options to reach the 5 year look back.
        Some places have private and limited Medicare licensed beds, Primarily to transition existing residents to Medicare when funds run out.

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        • #5
          Thank you all for the replies- I guess I shouldve put it in another category.
          It is a elder lawyer that is advising us- the 5 year lookback does apply to NURSING HOMES in NY, but for home care it is only a 1.5 month lookback until October- hence the rush to get it done. I tried getting my parents involved in this since 2015, but they kept sticking their heads in the sand as a "it wont happen to me yet" or "dont upset your father we wont talk about it now".
          I've tried explaining the 5 yr look back to mom multiple times, she still wont accept that that includes gifts to kids or CDs she had saved to give to grandkids when she wanted instead of just gifting it years ago. Or the apartment they sold last year. As it stands, home care seems to be the only option anyway (dad still can perform ADLS for now), and when the time comes for nursing home we will have to deal with the trust issues- spousal refusal may be needed, or reversing course and turning it into an immediate annuity for mom while paying the penalty for that month. Mom refused the annuity option a year ago because then she "cant leave that money to the grandkids when I [sic] die". Mom's stubbornness is a big issue so the trust has become the last option available. I agree finding a nursing home that will take medicaid now, baring a hospital visit for dad first, will be nearly impossible. Most of dad's SS will have to go into a pooled income trust for him to be eligible also, but that may save thousands of dollars in care as long as dad lives more than a few months. A second opinion lawyer told us to just do spousal refusal, which I think is cheating the system and know NYC has gone after trying to recover.

          Back to my original question- would you tilt the investments in the trust towards more dividend paying investments to provide mom some income while this is happening?

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          • #6
            “Back to my original question- would you tilt the investments in the trust towards more dividend paying investments to provide mom some income while this is happening?”
            Is original principal defined in holdings or in dollars?
            If it is Total Return, reaching for yield (dividend or interest) is higher risk. Safer the bonds, the lower the return. Because of your mom’s age, I would lean towards an AA that you feel comfortable with.

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            • #7
              Originally posted by Tim View Post
              “Back to my original question- would you tilt the investments in the trust towards more dividend paying investments to provide mom some income while this is happening?”
              Is original principal defined in holdings or in dollars?
              If it is Total Return, reaching for yield (dividend or interest) is higher risk. Safer the bonds, the lower the return. Because of your mom’s age, I would lean towards an AA that you feel comfortable with.
              Mom (and dad) wont be able to access the principle, but it can be set up for mom to receive the income generated from the trust assets, whether they are stock, bonds, cds, hy savings, etc. I do not think this includes growth of the stock price, but will ask to be certain. I guess if it were just a dollar price then I would lean towrards total return and not tilting towards dividend indexes. That clarity would help to know beforehand. I was led to believe it is just the dividends that would not be reinvested that we can set up to give mom an income from the trust. Then if Mom needs a nursing home the income she was getting would go to her nursing home care. The principle asset should still go to the beneficiaries though (me, my sister, her kids).

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              • #8
                Originally posted by billy View Post

                Mom (and dad) wont be able to access the principle, but it can be set up for mom to receive the income generated from the trust assets, whether they are stock, bonds, cds, hy savings, etc. I do not think this includes growth of the stock price, but will ask to be certain. I guess if it were just a dollar price then I would lean towrards total return and not tilting towards dividend indexes. That clarity would help to know beforehand. I was led to believe it is just the dividends that would not be reinvested that we can set up to give mom an income from the trust. Then if Mom needs a nursing home the income she was getting would go to her nursing home care. The principle asset should still go to the beneficiaries though (me, my sister, her kids).
                Squishy:
                Goal was to protect it for Mom, not preserve inheritance for the kids.
                •Annuity locks it all to Mom
                •Trust locks mom out of principal- all to kids.
                Don’t think you have found a solution unless the income is really substantial. She is 15 years younger. I think you found two ways to shelter the assets. Might be a combination. Some annuity and some trust income. Head strong or not, it’s not a light switch. Need to be practical for her sake. It’s nice she wants to gift, needs to be workable.
                Last edited by Tim; 07-22-2020, 05:16 PM. Reason: What if mom doesn’t need a nursing home?

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                • #9
                  Attempted presenting the half and half option (which I like) to mom- she is still against an annuity bc "if i die we lose all that money"- my sister and I dont care about any inheritance, but she is adamant about it. If it were only up to me, I would've made mom have the annuity. At least she's agreed that if dad needs the nursing home within 5 years, the money in the trust (it will have to be reversed, able to do in NY if all beneficiary parties agree) will have to be reversed and then be put in an annuity for her. Baby steps? NY Medicaid does prorate the time the money was in the trust at least so longer dad stays home the better financially it will be for mom.

                  Confirmed with lawyer's book they gave me- the trust principal and gains must stay within the trust; interest and dividends must be paid out to mom as income at least quarterly otherwise it resets the clock for counting assets. If house goes in the trust too, then the trust can use the principal to pay any repairs on the house. No need for house in trust for now though, its under NY exempt value. So goal will not be total growth/return, but dividend returns to give some income to mom. Combined with her SS, pension and TDA retirement, hopefully that will be enough. If not, what does she need a 3 bedroom house for once she's living all alone? Downsizing = less expenses + bump in assets once dad is dead. I will start bringing up that reality more often.

                  Lessons to be learned- have these conversations before they are needed. I tried for 5 years, but parents weren't ready to have it.
                  Last edited by billy; 07-22-2020, 07:50 PM.

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                  • #10
                    NY has Medicaid and pooled trust options. Also note that NY Medicaid does NOT look at retirement money (as of now). I’ve had a few instances along the meat where these have been used for clients in the past. Best of luck, here’s an article I found that can help give some more info:

                    https://nyestateslawyer.com/new-york...st-to-qualify/
                    Founder, Coastal Wealth Planners- Fiduciary Tax-Sensitive Retirement Planning & Wealth Management www.coastal-wp.com email: [email protected]

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                    • #11
                      Annuity sounds like the way if inheritance isn't issue. Reverse mortgage if finances become constrained and need to tap asset equity.

                      Another question is the Medicaid care itself. Home health agencies are a bit stretched and strained on Medicaid. Even in resource gernous California there's a significant difference in level of care between Medicaid driven agencies and others.

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