Question: Having read your column for several months and wanting to begin planning, my husband and I contacted a lawyer who told us that the best way to get ready for the potential of long-term care was to put all of our assets in a trust so that we could keep control of our property and avoid the expense of probate. We are in our late 60’s and have two grown children. Our assets include a house (which is paid for), $75,000 in certificates of deposit, and $25,000 in life insurance. I am retired from a civil service job, while my wife is a retired teacher. Are we on the right track? Please do not use our names.

Answer: We are not sure whether your lawyer is recommending a revocable trust -- which can be terminated according to its terms -- or an irrevocable trust -- which can not be undone. In either case, while trusts may be useful in the Medicaid and long term care planning areas, they can also create traps for the unwary.

First, planning to avoid probate has virtually nothing to do with planning for long-term care. With an estate of your size, you need not concern yourselves with estate taxes or a large probate expense.

Second, depending on where you live, transferring your assets to a revocable living trust may (1) have no significant Medicaid planning advantages, (2) make Medicaid planning more complicated, or (3) cause otherwise non-countable resources to lose their exempt status for Medicaid purposes. For example, in some states, if a person transfers the otherwise exempt personal residence to a revocable trust, the residence could lose its non-countable status and be considered an available asset for Medicaid qualification purposes. And, if gifting to a spouse is required, the trust may not provide for this important tool while most properly prepared durable powers of attorney will.

On the other hand, if an irrevocable trust is used for Medicaid planning, the person creating the trust – called the “grantor” -- can not retain either an income or reversionary interest in the property. If either is retained, the trust will be deemed to be a "Medicaid qualifying trust" -- the exact opposite of what it appears to mean. For example, if an individual transfers assets to an irrevocable trust and retains any rights to receive distributions from the trust, the trust assets will be considered as being available in determining Medicaid eligibility. This can be very difficult because the trust then cannot be undone.

Depending on the circumstances, however, certain irrevocable trusts may assist in the Medicaid planning process. For example, assets belonging to a disabled individual under age 65 can be transferred to an irrevocable trust in order to either prevent the disabled individual from losing the assets to creditors or qualify the individual for Medicaid benefits. In addition, if a parent establishes an irrevocable trust solely for the benefit of a disabled child, the assets in the trust can be excluded from consideration in determining the Medicaid eligibility of both the parent and the child. None of these options seems to fit your situation.

Taking the NextStep: A living trust in your situation is akin to hunting a gnat with an elephant gun. We suggest that you get another opinion as it appears to us that by using durable powers of attorney with appropriate gifting provisions, you will be able to accomplish what you appear to need more safely and at a much lower cost.

Be Aware: While in most cases discrimination by a Medicare or Medicaid certified facility against Medicaid-eligible residents is prohibited, the admission process is an exception to that rule.

Effective October 1, 1990, the federal Nursing Home Reform Act requires Medicare and Medicaid certified facilities to establish and maintain identical policies and procedures regarding transfer, discharge, and the provision of services for all residents, regardless of source of payment. Unfortunately nothing in the Act expressly prohibits unfair admission practices based on source of payment.

Only a handful of states expressly prohibit this type of discrimination. For this reason, Medicaid-eligible individuals are frequently refused admission or put on Medicaid-only waiting lists even though beds are available. This allows the nursing facility to save the beds for higher rate private pay or Medicare residents.