Medicaid Planning? Why You Need An Irrevocable Trust – The Law Office of Carol A. Lawson

Medicaid Planning? Why You Need An Irrevocable Trust

The Medicaid asset limit for a nursing home resident covered by Medicaid is no more than $2,000 in “countable” assets.  An irrevocable trust will help you meet the countable assets.   A trust is a legal entity under which one person — the “trustee” — holds legal title to the property for the benefit of others — the “beneficiaries.” The trustee must follow the rules provided in the trust instrument. Whether trust assets are counted against Medicaid’s resource limits depends on the terms of the trust and who created it.

Medicaid considers the principal of such trusts to be assets that are countable in determining Medicaid eligibility. Thus, revocable trusts are of no use in Medicaid planning.

Income-only trusts

An “irrevocable” trust is one that cannot be changed after it has been created. This type of trust is drafted so that the income is payable to the “grantor” for life, and the principal cannot be applied to benefit your or your spouse. At your death the principal is paid to your heirs. This way, the funds in the trust are protected and you can use the income for your living expenses. For Medicaid purposes, the principal in such trusts is not counted as a resource, provided the trustee cannot pay it to you or your spouse.  if you do move to a nursing home, the trust income will have to go to the nursing home.

With an irrevocable trust you cannot gain access to the trust funds even if you need them for some other purpose. Make sure to leave an ample cushion of ready funds outside the trust.

Another option for an income only trust is to place the property in a trust from which even payments of income to you or your spouse is set up for the benefit of your children. Then the beneficiaries at their discretion, use the income or asset for your benefit.    These trusts usually contain property that has increased in value, such as real estate the grantor retains a “special testamentary power of appointment” so that the beneficiaries receive the property with a step-up in basis at your death. This will also prevent the need to file a gift tax return upon the funding of the trust.

Funding an irrevocable trust within the five years prior to applying for Medicaid is subject to the look back period. which may result in a period of ineligibility. See Medicaid’s asset transfer rules, for the actual period of ineligibility based upon the amount transferred to the trust.

 

Carol A. Lawson, Esq., 28870 U.S. Hwy19 #300, Hodusa Towers, Clearwater, FL 33761

Phone: (727) 410-2705;   email: calh@gate.net

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