Alzheimer's Awareness Month: Medicaid Trusts and the Trustee Bond
November is National Alzheimer’s Disease Awareness Month, and for many families it hits close to home. An estimated 7.4 million Americans are living with Alzheimer’s, according to the Alzheimer’s Association. Behind that number are spouses and adult children trying to make good decisions in the face of so much unknown. Elder law firm Russo Law Group says it plainly in its Awareness Month guidance: “conversations about aging, health, and future care should not wait until a crisis occurs.” Living with this disease is the hardest part. Unfortunately, caring for someone through it also takes money, often more than one average household can manage alone. That is where a Medicaid trust, and the trustee who runs it, can help.
Key Points
- Timing matters. Alzheimer’s can affect a person’s legal capacity to sign documents, so decision making and trust planning works best early.
- Medicare is not the answer for long-term care. As Russo Law Group notes, Medicare generally does not cover long-term custodial care. Medicaid can, but it has strict income and asset limits.
- A Medicaid trust is irrevocable. Assets placed in it are no longer in the person’s name. In most states, transfers made within 60 months before applying can delay eligibility.
- Every trust needs a trustee. A trustee bond protects the beneficiaries if that trustee fails to do the job properly.
What Is a Medicaid Trust?
A Medicaid trust is an irrevocable trust that holds a person’s assets so they are not counted when that person later applies for Medicaid long-term care. It is often called a Medicaid Asset Protection Trust.
Why plan this way? It isn’t about hiding money. It’s about the reality facing hard-working families. Someone turning 65 today has almost a 70% chance of needing long-term care, according to the federal Administration for Community Living. And the National Council on Aging found that 80% of older-adult households couldn’t withstand a major financial shock, such as serious illness or the need for long-term care. Its CEO, Ramsey Alwin, describes many of them as Americans who “worked hard and played by the rules.” For most families, the question isn’t whether they’ll need help paying for care, but when.
So how does a Medicaid trust work? The key is that it’s irrevocable, meaning it generally can’t be changed or undone once it’s set up. The person who creates the trust gives up ownership and control of the assets placed in it. In exchange, those assets can be preserved instead of being spent down entirely on care. With Medicaid helping cover long-term care, the family keeps some resources, and some choices, as needs and costs mount. For example, as we covered in Too Much and Too Little? Medicaid Trusts, the family home can often be placed in the trust while the person continues to live there.
The catch is timing. Under federal law, Medicaid reviews asset transfers made in the 60 months before an application in most states. Transfers inside that window can trigger a period of ineligibility. Medicaid rules vary from state to state, and they change. An elder law attorney who knows your state’s rules can tell you whether a Medicaid trust fits your family, how to set it up and when to fund it.
An Alzheimer’s diagnosis does not automatically end someone’s ability to plan (or continue to have enjoyment in life.) Russo Law Group points out that people in the early stages can often still take part in decisions. But because signing legal documents depends on capacity, waiting is risky. A conversation with an elder law attorney soon after a diagnosis is one of the most useful steps a family can take. Though it costs money to work with an attorney, for most families, some quick back of the envelope math will illustrate that when compared to the costs of care for a loved one who can never be left alone, legal fees turn out to be well worth it.
Who Serves as Trustee, and What Do They Do?
The trustee manages the trust’s assets according to its terms. Because the person creating a Medicaid trust gives up control of the assets, they must name someone else as trustee. The role often falls to an adult child or another relative, though a professional trustee is also an option.
Core duties include:
- Following the trust document to the letter
- Managing assets so as to maintain Medicaid eligibility
- Keeping trust assets separate from personal funds
- Keeping clear records and providing accountings to beneficiaries
- Treating all beneficiaries fairly
- Never using trust property for personal benefit
This is not a one-time favor. A trustee may serve for many years, sometimes while also helping care for a parent with Alzheimer’s. Siblings may disagree about decisions. Clear records and a well-chosen trustee go a long way toward keeping the peace.
When a Professional Trustee Can Help
A professional trustee, such as a trust company, bank or independent professional fiduciary, brings experience with recordkeeping, tax filings, investments and Medicaid rules. They can also be a neutral voice when siblings don’t see eye to eye. For more, see Tips for Choosing a Professional Trustee.
Families don’t have to choose one or the other. Many trusts name a family member and a professional as co-trustees. The family member knows their loved one’s wishes and daily needs, and the professional handles the administration. Professional trustees charge fees, so weigh that cost against the support they provide.
A professional trustee also gives families something harder to measure: time. Handing off the paperwork, bill paying and recordkeeping frees loved ones to simply be together. That might mean a walk around the block, a favorite meal or an afternoon with old photos. In the face of Alzheimer’s, those moments turn out to matter greatly.
How Does a Trustee Bond Protect the Family?
No matter who serves as trustee, it’s wise to think about financial protection for the beneficiary of the trust if something goes wrong. That’s where trustee bonds play a role. A trustee bond is a type of fiduciary bond that guarantees the trustee will carry out their duties faithfully. If a trustee mismanages or misuses trust assets, beneficiaries can make a claim against the bond to recover their losses, up to the bond amount.
A trust agreement, a court or state law may require a trustee bond. In states that follow the Uniform Trust Code, banks and trust companies can usually skip a bond even when the trust calls for one. Individual trustees, whether family members or independent professionals, generally don’t get that exemption. Even when it is optional, a bond gives families added confidence that the assets meant to protect a loved one will be handled properly. Learn more in Trustee Bonds: What You Need to Know.
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