An Irrevocable Trust is a type of Trust which can be written to accomplish a wide variety of objectives and purposes, but the distinguishing feature of such a Trust is that it generally cannot be amended or undone once it is put into existence. A “revocable” trust is one that may be changed or rescinded by the person who created it, and therefore for Medicaid purposes the assets contained in a revocable trust are countable in determining Medicaid eligibility. On the other hand, provided that the Irrevocable Trust has been drafted properly, has been Administered properly, and that the funding of the Irrevocable Trust has been completed more than 60 months prior to the need or application for Medicaid benefits, then the assets held in the Irrevocable Trust are not counted in determining Medicaid eligibility and can provide a variety of additional practical and tax benefits as part of an individual’s Medicaid asset protection plan.
Irrevocable trusts have the benefit of passing assets to beneficiaries of the older adult without requiring a probate. Also, the irrevocable trust can set incorporate special purpose estate planning, such as special needs trusts or discretionary trusts for children. One of the most important roles for an irrevocable trust is asset protection in the event of a long term care illness, such as Alzheimer’s, dementia, Parkinson’s, stroke, etc. The goal is to place assets into a properly drafted irrevocable trust, which minimizes loss of control while maximizing future eligibility for Medicaid. In this way, you are limiting the erosion of your estate’s assets, safeguarding those assets for your or your spouse’s future needs, and ensuring an inheritance to your beneficiaries. However, the use of an Irrevocable Trust as part of Medicaid Planning and Asset Preservation Planning is complicated and should not be done without a detailed analysis of an individual’s financial and personal health with the assistance of an experienced Elder Law Attorney.
An “irrevocable” trust is one that cannot be changed after it has been created. In most cases, this type of trust is drafted so that the income is payable to you as the person establishing the trust, 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 for either of your benefits. However, if you do move to a nursing home, the trust income will have to go to the nursing home.
One advantage of these trusts if it has been drafted properly is that it is considered a “grantor trust” for tax purposes, and therefore you still get many of the tax benefits associated with the assets. By placing assets that has increased in value, such as real estate or stock, into the Trust you can avoid being forced to sell them during your lifetime to pay for your care resulting in large capital gains tax, simply holding them in the Income Only Trust 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. Remember, funding an irrevocable trust can cause you to be ineligible for Medicaid for the following five years.
Your irrevocable trust should be created as a result of a customized plan suited to your personal objectives and not a “one size fits all” form. Since the irrevocable trust must accomplish your objectives, we need to know for what purpose or purposes we are planning. After a full understanding of the purposes for the irrevocable trust, then your assets need to be analyzed. Some assets, as compared to other assets, may be selected to go into the irrevocable trust. In addition, what is an appropriate amount of assets to place in the irrevocable trust and what is an appropriate amount of assets to be left out of the trust? Again these are all very important considerations that go into an asset protection plan using an irrevocable trust. You should be aware of the drawbacks to such an arrangement. It is very rigid, so you cannot gain access to the trust funds even if you need them for some other purpose. That is the reason why it is essential that the Elder Law Attorney complete a detailed analysis of all possible scenarios to make sure that the funding of the Irrevocable Trust does not jeopardize your ability to obtain care and that sufficient funds remain outside of the trust in case the unforeseen occurs.
Let the Law Office of James C. Siebert & Associates,PC use their years of experience to assist you in conducting an analysis of your goals, your finances and your health and help you determine if an Irrevocable Trust is right for you and your family, and if it is assist you in the preparation and implementation of the Irrevocable Trust. Call now (847)253-7500 to schedule an appointment.