Many people in Massachusetts plan on using Medicaid as a means for paying for long-term care when they age. However, what they may not know is that Medicaid is a means-tested program, and funds won’t be paid out unless a person’s assets and income are below a very low threshold.

Most people do not want to impoverish themselves or lose all they have saved as an inheritance to pass on to loved ones in order to pay for long-term care. However, there are ways to protect assets while still qualifying for Medicaid. There are two types of trusts that may accomplish this goal: asset protection trusts and qualified income trusts.

Asset protection trusts allow a person to transfer ownership of an asset to the trust itself, meaning it no longer belongs to the person once the transfer of ownership is complete. This keeps that asset out of reach for Medicaid purposes. Keep in mind, though, that Medicaid’s five-year “look-back” period still applies to these transfers, meaning that if the transfer was made within five years of applying for Medicaid benefits, the applicant may not qualify for benefits and may be penalized.

Qualified income trusts (QITs) are a type of irrevocable trust, so they cannot be altered once executed. They are a vehicle to hold income above the Medicaid threshold level. Trustees for QITs manage the funds in the trust, disbursing them for certain allowable purposes.

Trusts can be an important part of Medicaid planning, but readers should be aware that the information in this post is general in nature and does not constitute legal advice. Those who want more information on how trusts can be used in Medicaid planning should seek professional advice.