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What Are the Legal Requirements for Setting Up a Medical Trust?

What Is a Medical Trust?

The term medical trust is usually used to reference a Medicaid Asset Protection Trust. In California, this would be a Medi-Cal Asset Protection Trust, and it’s a type of legal document that can help with Medi-Cal planning. An elder law attorney can help you plan proactively for retirement and future healthcare and other needs, including protecting some of your assets in trusts to ensure you can access Medi-Cal without your heirs losing access to a home and other property.

Why Might You Want to Set Up a Medical Trust?

You may want to set up a Medi-Cal Asset Protection Trust if you have assets, including a primary residence, and believe that they might be forfeited to Medi-Cal recovery should you ever require Medi-Cal to help cover your medical bills. This is a common situation for older adults, who may need to access Medi-Cal benefits to help cover the costs of long-term care.

Note that this is in contrast with a special needs trust, which you might create and fund to help cover the medical bills and other expenses of someone with special needs. While a MAPT can be used to manage assets in such a way as to pay some medical bills or cover certain expenses, its primary purpose is typically not to provide long-term care for another person with special needs.

Legal Requirements for Setting Up a Medical Trust in California

Medi-Cal Asset Protection Trusts are complex legal vehicles that must meet numerous requirements to best protect your assets against Medi-Cal recovery. The good news is that by going through this process, you also typically protect those assets from creditors and other situations, which can provide some additional peace of mind.

Trust Must Be Irrevocable

A MAPT must be an irrevocable trust. This means that you cannot change it after it goes into effect or that it is extremely hard to change. While this does reduce the flexibility of the trust, an irrevocable trust provides a high level of protection. Once you transfer assets into the trust, you do not personally own those assets. The trust does. The assets can be used for your benefit according to the provisions of the trust, but you can’t just access them whenever and however you want. This is what provides some protection against Medi-Cal recovery, creditors, and certain other situations.

You Must Appoint a Trustee

You will need to name a trustee for the trust. This person or agency is tasked with managing the assets within the trust in keeping with the trust provisions and in the best interests of the beneficiaries of the trust. You can name someone you know, such as a family member. You can also work with an attorney who provides trust administration services.

A Medi-Cal Asset Protection Trust Must Comply With Medi-Cal Rules

If you are creating a trust to protect your assets from Medi-Cal recovery, you will need to ensure that the trust complies with Medicaid rules. You’ll need to create the trust in advance to keep it outside of the lookback period—you can’t wait until you know you may need Medi-Cal coverage and create the trust then. You may also have to ensure that any income that the trust assets generate is distributed in keeping with Medi-Cal income disbursement rules.

The lookback period in California is 30 months. When you apply for Medi-Cal, the agency may look back at the previous 30 months to see if you have any assets that could be used to offset the cost of your care. If you have gifted assets, put them in a trust, or otherwise attempted to “dispose” of them within this period of time, it may impact your eligibility for Medi-Cal or those assets may be at risk of recovery.

You Must Name a Beneficiary

Ensure that your trust includes one or more beneficiaries who will receive the assets in the trust upon your death. This helps ensure that the assets you want to protect, such as a home, are kept within the family and go to the beneficiaries you choose.

Ensure You Take a Comprehensive Approach to Estate Planning

Medi-Cal Asset Protection Trusts are tools that may be helpful in long-term care planning. They are not, however, a singular estate planning tool that may address all your financial goals for retirement or passing on assets to loved ones in the future. If you are considering this type of trust, it’s also important to consider other goals you have and how you can balance those needs with other types of estate planning. It’s also essential to remember that while you might still benefit to some degree from assets in a MAPT, you will give up a certain level of control by placing your assets in the trust.

Work With Experienced Estate Lawyers

To ensure the most positive outcome for long-term care planning and estate planning, consider speaking to experienced estate lawyers about your goals and needs. An estate planning attorney who has experience in elder law can help you balance these needs and suggest options that can help you protect your interests and achieve financial and estate goals in the future. To get started on estate planning or long-term care planning with trusts, contact Celaya Law at 707-754-0977.

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