Webinar Replay

Click Here to Download Webinar Summary

Also, below are links to the two articles that Scott wrote and referenced during the presentation, as well as a link to Ed Morrow’s White Paper on BDOTs.

IRC Section 678 and the Beneficiary Deemed Owner Trust (BDOT) by Edwin P. Morrow :: SSRN

ESTATE PLANNING  - Estate Attorney Referrals and Recommendations by Scott Levin

TRUST-BASED PLANNING - The Premature Demise of the Trust-Based Estate Plan by Scott Levin

Advanced Trust Strategies for Asset Protection, Tax Efficiency, and Long-Term Care

Tom Dickson hosted Scott Levin (Westcott Financial Advisory) for a planning-heavy webinar on (1) Medicaid planning for long-term care risk, even for affluent clients, (2) SECURE Act trust planning implications (especially accumulation vs. conduit trust design), and (3) advanced drafting strategies such as BDOT provisions, QTIP/conduit coordination, and Clayton elections for flexible funding decisions at the first death.

Why long-term care planning can matter even for “wealthy” clients

Scott’s framing was practical: clients may say “I’ll never need Medicaid,” but the issue is duration risk. Nursing home and extended care costs can compound into six- or seven-figure totals, particularly when care lasts many years (for example, early-onset dementia scenarios). His point was that Medicaid planning sometimes becomes relevant not because the client is “not wealthy,” but because care costs can consume assets intended for a surviving spouse or heirs.

Transcript additions that matter for advisors:

• Scott repeatedly emphasized state-by-state variability (Medicaid is joint federal/state), and that advisors should avoid “averages” when implementing rules in a specific client’s state.
• He flagged the real-world problem that families often do “normal things” (gifts, informal payments, selling assets below FMV) that can later be interpreted as transfers and create eligibility penalties.

Fact-check note: The “~56%” figure is directionally consistent with commonly cited long-term care utilization estimates for people turning 65, but the exact percentage varies by source, study year, and definition of “care.” See sources below.

Medicaid eligibility basics (and what advisors should watch)

Scott reviewed three core rule sets that drive planning:

1) Income rules (institutional Medicaid)

He described the common “income cap” approach used in many states for nursing facility Medicaid. This is often referenced as 300% of the SSI Federal Benefit Rate (FBR) (state-specific application). Practically, this means an applicant’s income above the cap may require strategies such as a Miller Trust / Qualified Income Trust in some states (not all states use the same structure).

See Medicaid.gov + SSA sources below.

2) Asset limits and the community spouse concept

Scott explained that for many Medicaid pathways the countable asset limit for the applicant is very low (often around $2,000, but varies), and that married planning requires understanding the Community Spouse Resource Allowance (CSRA) and the Minimum Monthly Maintenance Needs Allowance (MMMNA) rules.

See CMS/state standards source links below.

3) The 5-year lookback and penalty period risk

Scott gave several concrete examples of transfers that can create problems during the 5-year lookback for nursing facility Medicaid:

• gifts to children/grandchildren (including “normal” gifts)
• transferring a home to a child
• paying caregivers/housekeepers without a formal written agreement
• charitable donations
• selling property for less than fair market value
  He also noted that eligibility can be disrupted by post-approval asset changes (e.g., inheritance, lawsuit settlement, lottery winnings), depending on timing and program rules.

Medicaid Asset Protection Trusts (MAPTs): how Scott described them

Scott positioned the MAPT as an irrevocable trust strategy intended to help families plan ahead of the lookback window. Key operational points he emphasized:

• Irrevocable structure and timing: MAPTs are typically funded well in advance (commonly “5+ years”) to avoid transfer penalties for nursing facility Medicaid.
• Control limits: The grantor generally cannot retain direct access to principal if the goal is asset protection for Medicaid eligibility purposes.
• Income vs principal: He described the common approach where the grantor may be able to receive income (depending on drafting), while principal is protected (again, subject to state rules and careful drafting).
• Estate inclusion & basis: He discussed MAPTs as commonly drafted as grantor trusts for income tax purposes, often with the goal of preserving a step-up in basis at death (estate inclusion strategies vary by drafting and state law—this is technical and needs attorney review).
• Residence treatment: He described the primary residence as often treated favorably (subject to home equity limits and state rules), and emphasized that planning must account for how the home is maintained and paid for.

Fact-check note: Medicaid home equity limits are real and updated; the dollar figures in marketing summaries vary. See CMS/state standards and Medicaid planning references below.

Medicaid-compliant annuities and “spend-down” tools

Scott discussed “Medicaid-compliant annuities” as a potential tool to convert countable assets into an income stream (especially in crisis or near-crisis scenarios), while emphasizing that planning earlier with a MAPT is often preferable. He highlighted that these annuity strategies are rule-heavy and state-sensitive.

(He also acknowledged the broader long-term care funding toolbox: traditional LTC insurance, hybrid policies, and annuity-linked LTC benefit designs.)

SECURE Act trust planning: why “BDOT” came up

Scott transitioned from Medicaid to retirement trust planning under the SECURE Act’s distribution framework. His point was that many families still want trusts for:

• creditor/divorce protection
• spendthrift control
• “bloodline” protection and remarriage risk management
  …but the SECURE Act environment changes how IRA distributions interact with trusts.

Accumulation trust vs conduit trust tension

Scott described how conduit-style structures can push retirement distributions out to the beneficiary (reducing creditor protection), while accumulation trusts keep assets in trust but risk compressed trust tax brackets.

BDOT (Beneficiary Deemed Owner Trust) concept (Section 678-based)

He described BDOT provisions as a way to keep the trust as an accumulation structure (preserving protection), while shifting income tax treatment to the beneficiary under IRC Section 678 mechanics, so the beneficiary pays tax at their individual rates instead of the trust paying at compressed trust rates.

He also discussed:

• using a trust protector to turn BDOT “off” if circumstances change (disability, special needs, misuse, etc.)
• that BDOT use is not one-size-fits-all and can be inappropriate for certain beneficiary profiles
• that this is a more advanced / nuanced drafting area and should be handled by experienced counsel

Fact-check note: Section 678 is real; BDOT is more of a practitioner term/structure that relies on drafting to create the intended tax result. There is limited widespread “official” BDOT guidance; implementation should be done with expert counsel.

Drafting best practices: Clayton election, QTIP, portability (state nuance)

Scott’s advanced drafting points included:

• Clayton election approach (instead of rigid fractional formulas) to preserve flexibility at the first spouse’s death: the idea is to decide later how much goes into bypass vs. marital/QTIP structures, depending on the tax law environment at that time.
• QTIP coordination: he emphasized the importance of satisfying QTIP requirements and aligning trust provisions properly (and flagged conduit/beneficiary rules in the retirement context).
• State estate tax portability: he cautioned that state-level estate tax regimes vary and that portability is not universally available at the state level. (He referenced Hawaii and Maryland as notable state portability jurisdictions.)

Fact-check note: Hawaii and Maryland have state estate tax portability mechanisms; see official form/instructions sources below. The “only” claim should be stated carefully because state laws can change.

Advisor-facing takeaways (what to do differently Monday morning)

1. Ask every retiree/near-retiree household about long-term care duration risk, not just “do you have LTC insurance?”
2. Treat Medicaid planning as state-specific—avoid national-rule shortcuts when implementing.
3. Audit gifting behavior and informal payments when long-term care risk is rising; small “normal” transfers can create large Medicaid problems later.
4. For IRA-to-trust planning post-SECURE Act, confirm whether the trust is designed as accumulation vs. conduit—and whether there’s a strategy to address compressed trust tax rates (BDOT is one advanced approach).
5. Avoid overconfident DIY legal document solutions for complex trust objectives; Scott explicitly cautioned that advanced features (accumulation vs conduit, BDOT toggles, protector powers) are easy to miss in generic documents.

Sources 

Medicaid, SSI, spousal impoverishment standards

• Medicaid.gov (official Medicaid program site): https://www.medicaid.gov/
• Medicaid.gov (spousal impoverishment / eligibility information hub): https://www.medicaid.gov/medicaid/eligibility/index.html
• Social Security Administration (SSI and benefit rate information): https://www.ssa.gov/ssi/
• Federal Register (official publication for federal benefit updates, including SSI-related rules): https://www.federalregister.gov/
• Centers for Medicare & Medicaid Services (CMS) – federal oversight of Medicaid rules and annual standards references: https://www.cms.gov/

Example of published 2026 spousal impoverishment standards (state bulletin referencing federal standards)

• Delaware DHSS (Spousal Impoverishment Standards 2026 PDF reference): https://dhss.delaware.gov/dhss/dmma/files/spousalimpoverishstd2026.pdf

Home equity limit / Medicaid planning background references

• Medicaid Planning Assistance (plain-language Medicaid eligibility and limits by state; verify state specifics with counsel): https://www.medicaidplanningassistance.org/

IRC Section 678 (BDOT technical foundation)

• Legal Information Institute (Cornell Law) – Internal Revenue Code, Section 678: https://www.law.cornell.edu/uscode/text/26/678

SECURE Act / retirement distribution framework (background)

• IRS retirement plan guidance landing page: https://www.irs.gov/retirement-plans
• Congress.gov (SECURE Act legislative information search): https://www.congress.gov/

State estate tax portability references (official forms/instructions where available)

• Hawaii Department of Taxation (Estate Tax forms/instructions, including portability-related materials): https://tax.hawaii.gov/forms/
• Maryland Comptroller (Estate tax forms/instructions landing page): https://www.marylandtaxes.gov/individual/estate-trust/estate-tax.php