Using an Irrevocable Trust to Plan for Medicaid

There are many Medicaid planning strategies designed to transfer assets without incurring a penalty.  (See http://www.perlalaw.com/blog/personal-caregiver-agreement/).  This blog will explore many of these strategies.  One such strategy is the Irrevocable Trust.  With an Irrevocable Trust, which is a trust that cannot be changed or terminated, drafted so that you receives only income and not principal, you can transfer your assets, wait 60 months and apply for long-term Medicaid without penalty. 

Why Can’t I Set Up a Revocable Trust Instead?

As a revocable trust can be changed or terminated by you at any time, the assets remain in your control.  As long as you retain control of an asset, the state considers it a countable resource for Medicaid eligibility purposes.  Hence, while a Revocable Trust can be a beneficial Medicaid planning tool in some cases (See http://www.perlalaw.com/blog/before-applying-for-medicaid-a-married-couple-should-consider-a-revocable-trust/) placing an asset in a Revocable Trust will not remove it from your countable resources and hence, will not affect Medicaid eligibility.

How is an Irrevocable Trust Superior to Simple Gifting?

The Irrevocable Trust has many advantages over simple gifting. 

  • The trust can protect your assets from your recipients’ creditors and your recipients’ spouses should they get divorced.
  • You can appoint yourself Trustee so that you can continue to manage the assets and make distributions to your loved ones at your discretion.
  • You can continue to control the disposition of the assets at your death by retaining a testamentary limited power of appointment.

An Irrevocable Trust can be a great Medicaid planning tool if you have started planning early and have sufficient funds.