Irrevocable Trusts

One very useful Medicaid planning technique involves the creation of an irrevocable Medicaid Asset Protection Trust. This is an irrevocable trust specifically designed to preserve the assets of the estate for the non-institutionalized spouse and to protect the estate’s assets from so-called “Medicaid Spend-down.” Medicaid Spend-down, when it occurs, can compel the non-institutionalized spouse to spend the assets of the estate below the poverty level and live his or her remaining years in abject poverty. To achieve the purpose for which it is intended, this trust must be established and funded at least 60 months prior to the institutionalized spouse entering a nursing home. Remember, there may be opportunities to reduce the 60 months depending on the circumstances. With this type of trust one person or a married couple (called the settlor, or grantor) transfers some type of property to another person (called the trustee) to hold and manage for the benefit of one or more individuals (called the beneficiaries).

Gifts (including gifts to a Medicaid Asset Protection Trust) can cause the donors to be ineligible for Medicaid benefits for a period of time. After the ineligibility period has expired, the assets in the Medicaid Asset Protection Trust should be protected from nursing home costs. A drawback to this kind of trust is that neither spouse can have access to the principal and income of the trust. It is precisely this lack of access that protects the trust assets from nursing home costs.

The irrevocable trust is also a useful tool to shield assets from your creditors and your children’s creditors, and where applicable, your in-laws. For example, once the funds are in the trust they are designated by a separate tax ID number and no longer identified with your or your children’s social security numbers. If your child trustee has creditors or even college financial aid issues, this money will not be counted as an asset, however, after your demise, they will have full access to the account as they see fit.

Keep in mind, when putting money into an irrevocable trust we must always be concerned for you to maintain your quality of life because you will no longer be able to access the money in the trust. We would never suggest putting all of your money into such a trust, but in most cases there is surely some percentage of assets that can be isolated for future generations without causing the grantor to experience a decline in their quality of life.

The Medicaid Asset Protection Trust is not for everyone, but in the right circumstances it can be an outstanding means of protecting a family’s financial security.

 

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