May 5, 2022 | Estate Planning
Does the 5-Year Clock Restart if You Sell a House in a Trust?
Recently a client asked us:
“If my house is in a trust and I sell it to buy a new one, does the five-year clock restart?”
That is an excellent question, and one that some of you may be wondering as well. So, we thought we’d share the answer here.
First, for those who aren’t familiar with the “five-year clock” mentioned above, it’s a reference to the five-year lookback period for Medicaid eligibility. In order to stay under the asset limit to qualify for Medicaid, some people may try to gift or transfer their assets to others. Such financial activity in the five years prior to the application date could disqualify an applicant. That’s why when we talk about putting assets in an irrevocable trust—particularly an asset protection trust—we encourage clients to do so at least five years prior to when they could need long-term care.
Now, back to the question. The client wants to know if they’ll have to wait another five years for the new house to be protected by the trust. The short answer is no. Here are the details.
Let’s start with the business of selling the home in trust. For the sake of this question, let’s assume the house is sold for a profit, or at least breaks even. The trustee would see to it that the money from the sale is deposited into a bank account owned by the trust. That account would then be used to purchase the new property for the beneficiary. This would not cause the lookback period to reset.
That’s the answer in a nutshell. Since your circumstances may vary, it’s always wise to consult with an estate planning attorney to ensure the transactions would not put your assets in jeopardy. Here at AlerStallings, we know questions like these come up often, and it’s important to have a trusted resource who can provide timely, accessible guidance. For this reason, our attorneys offer lifetime support for the plans we create and no-fee phone calls, so life’s most important questions never go unanswered.
Got a question we can help with? Here’s how to get in touch.