Can Seniors Use Medicaid Payback Trusts to Protect Their Assets?

 Posted on November 20, 2023 in Estate Planning

As seniors age, one of their primary concerns is how to protect their assets while still being able to qualify for government benefits and meet their ongoing needs. Medicaid can provide crucial financial assistance for long-term care expenses, but it also has strict eligibility requirements, including limitations on the amount of assets a person can own before they will qualify for benefits. Because of these requirements, a person may be required to “spend down” their assets before they can qualify. However, other options may also be available, including the use of trusts.

One potential solution for seniors who are looking to preserve their assets and still receive Medicaid benefits is the use of a Medicaid payback trust. This type of trust allows a person to transfer their assets into a trust, which is then managed by a trustee on behalf of the senior. The funds in the trust are not counted as part of the senior's personal assets when determining eligibility for Medicaid. However, these trusts can be complex, and it is important to work with an attorney who has experience in estate planning and elder law to ensure that all legal and financial issues are addressed correctly.

The Basics of a Medicaid Payback Trust

A Medicaid payback trust, also known as an OBRA trust, is specifically designed to meet the requirements set forth by state and federal laws regarding asset transfers and eligibility for government benefits such as Medicaid. A person’s own assets will be used to create an OBRA trust. Since this is an irrevocable trust, the assets transferred into the trust will no longer be under the person’s control, which will allow them to qualify for Medicaid benefits.

People over the age of 65 must create “pooled” OBRA trusts. Pooled trusts are managed by nonprofit organizations, and while separate accounts are held by each person who creates a trust, the assets placed in trusts are pooled together for investment purposes. 

How Does a Medicaid Payback Trust Protect Assets?

One of the main benefits of a Medicaid payback trust is that it allows seniors to protect their assets while still qualifying for Medicaid benefits. By transferring assets into the trust, those assets are no longer considered part of the senior's personal wealth when determining eligibility.

This means that even if a person has significant savings or valuable property, they can still qualify for Medicaid. The assets held in the payback trust are not counted towards this limit. However, these assets must be used for certain specific purposes. Distributions from the trust cannot be used for expenses that would be covered by Medicaid or other government benefits, but they may be used for other purposes.

The Payback Requirement

As the name suggests, there is a "payback" requirement associated with these trusts. In Texas, the state’s Medicaid Estate Recovery Program will seek to recover any Medicaid benefits a person received from their estate following their death. This means that any funds remaining in the trust must be used to reimburse Medicaid for the benefits the person received during their lifetime. If any assets remain in the trust after repaying Medicaid, they may be distributed to the person’s beneficiaries.

Contact Our Bexar County Elder Law Attorney for Medicaid Payback Trusts

If you need to determine your options for qualifying for Medicaid as a senior, The Law Office of Ryan C. Moe, PLLC can help you determine whether establishing an OBRA trust would be beneficial. We can ensure that all applicable requirements are met when creating trusts, transferring assets, managing distributions, and addressing Medicaid payback requirements. Our San Antonio estate planning lawyer can provide guidance on the best ways to protect your assets and ensure that your needs will be provided for throughout the rest of your life. Contact us at 210-861-6000 to set up a consultation, discuss your needs, and begin taking steps to secure your future.