Realizing a spouse needs care in an assisted living facility or nursing home is difficult. It’s emotionally difficult to no longer have that spouse living with you. It’s practically difficult to have to visit that spouse in another facility. It’s financially difficult to afford that long-term care. The cost of assisted living care in West Michigan ranges from $4,000-$8,000/month and $12,000-$15,000/month in a nursing home.
Medicaid is a financial option in some assisted living facilities and almost all nursing homes. It allows you to keep in 2026 the lesser of one-half of your and your spouse’s countable assets or $162,660. Medicaid defines countable assets as all of your and your spouse’s assets other than a home and vehicle. Fortunately, there’s planning that can be done to protect more of your countable assets.
1. Create a Sole Benefit Trust. This trust protects your countable assets above the protected spousal amount mentioned above. You create the trust and any assets in this trust benefit you. Another person (i.e., usually one of your children) is the trustee and manages the trust for you. Importantly, the trust must have specific language that qualifies it as a Sole Benefit Trust under the Medicaid rules. The timing of when to create this trust is unique. It must be formed around the time your spouse moves to a facility. In other words, you cannot create a Sole Benefit Trust years in advance. On the other hand, creating this trust and transferring assets to it are not considered divestment and are subject to the 5-year look-back period.
2. Transfers to the Sole Benefit Trust don’t incur income taxes. This type of trust is taxed to you and uses your Social Security number. Stated another way, it’s not a separate taxpayer and doesn’t have a tax ID number or EIN. This means you can transfer assets like a bank or brokerage account, real estate, annuity, or life insurance to a Sole Benefit Trust without tax consequences.
3. The Sole Benefit Trust protects your illiquid assets like real estate. Many Medicaid planning techniques require assets to be sold before they can be protected. Fortunately, the Sole Benefit Trust planning doesn’t. You can transfer an asset to this type of trust without it having to liquidate it. This is particularly helpful for assets like real estate. You can deed a rental property, farm land, a cottage, and hunting property to a Sole Benefit Trust and have it protected from a Medicaid spenddown.
