Half-Loaf Trusts

Funding for long-term care may involve numerous instruments.

A half loaf trust is an arrangement whereby an applicant transfers money or property to a trustee for the dual purpose of making the transferor poor while preserving some of the estate.  It is based on the law that once an applicant is otherwise qualified for Medicaid benefits BUT FOR the negative consequences of a penalized transfer, the applicant can private pay for care and each day that they remain in care they are forgiven part of the penalty for transferring property.  If the trust funds the care bill while there remains a penalty balance, the applicant gets to “double dip” because each dollar that is returned from the trust to the applicant reduces the transfer penalty dollar for dollar and the penalty is reduced daily through forgiveness of the penalty.  Thus, the applicant is able to retain approximately one half of the original “loaf” rather than having to spend it all prior to applying for benefits.

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