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A Better Partnership


Jul 2012
July 01, 2012

Estate Planning Tip: The Sole Benefit Trust

A recent case in my office has reminded me of the power of a Sole Benefit Trust (sometimes referred to as a Medicaid Annuity Trust) in helping a married person qualify for Medicaid.

In this case, the wife had been in a nursing home with dementia for nearly 5 years. The couple had already spent nearly $400,000 on nursing home care. The family had substantial savings, but even so, the toll of the nursing home care was beginning to affect the husband’s future financial security. In addition, the husband owned an interest in a small shop. He believed that these assets made it impossible for his wife to qualify for Medicaid.

Allows Savings Beyond Community Spouse Asset Allowance
Medicaid policy currently limits the asset allowance for a community spouse to $113,640.  However, a Sole Benefit Trust allows a much greater amount to be preserved for the community spouse. The policy reason behind this is apparently to prevent the spouse living at home from becoming destitute due to his or her spouse’s medical costs.

Immediate Qualification and Flexibility, Balanced with a Few Disadvantages
A Sole Benefit Trust must be irrevocable. It requires a third-party trustee. The trust assets must be used for the “sole benefit of” the community spouse.

In fact, the trust must require a certain percentage of the trust assets to be distributed to the community spouse on an annual basis. The percentage is based on the community spouse’s life expectancy. However, the payout can occur on an annual basis at such time as determined to be favorable by the trustee. Moreover, the payout can occur with asset in-kind, as opposed to cash.

These features give the Sole Benefit Trust a lot of flexibility. The trust must prohibit distribution of the assets for a period of time, usually nine months, after the initial transfer to the trust. But, upon transfer of those assets, the nursing home spouse gets immediate Medicaid qualification.  This can allow a community spouse with several hundred thousand dollars and a business interest to get coverage for the nursing home bill and avoid jeopardizing his or her economic security for the years to come. If the community spouse needs nursing home care at a later date, all of the assets in the Sole Benefit Trust are countable and would have to be spent down (or a different Medicaid planning technique would have to be used) at that time.

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