Medicaid Planning: Irrevocable Trust for Asset Protection
An irrevocable trust is a useful legal instrument for people who:
Think they may require Medicaid benefits for long-term nursing home care in the future, even if their current health is not an issue.
Have not obtained long-term care insurance or taken other steps to cover long-term nursing care costs.
Are concerned about preserving assets.
The Irrevocable Trust is a highly complex legal instrument and should be designed and drafted by a certified and experienced Florida elder law attorney. Contact the Karp Law Firm for assistance.
The Irrevocable Trust is an asset protection trust. An individual, known as the trustor, creates the trust and names one or more persons, but not himself or spouse, to manage the trust. The trustor can give detailed instructions regarding how the assets are to be managed. He can retain the right to change the trustee if at any time the trustee is not managing the assets to his/her satisfaction, even though the trust remains irrevocable. The trustor is entitled to all of the income, for himself for his lifetime, and if he desires, he may also make the income available for his spouse. The trustor retains the right to direct the trustee to give gifts of the principal to the trustor's children, although no distribution can be made of the principal to the trustor. Of course, the children are free to use the principal as they see fit, including spending it on the trustor.
The bottom line: Properly managed and funded after five years, all of the principal will be deemed an unavailable asset for Medicaid purposes and will be preserved for your family.
Another feature of this type of trust is that it generally pays income only to the trustor -- for example, interest on CD's or stock dividends -- but limits the trustor's access to the principal. Since the trustor, and spouse if there is one, are the only lifetime beneficiaries of the trust, they continue to have full use of any real estate placed in the trust. While assets placed in the trust can be managed by the trustee and bought and sold as before, the trustor and spouse cannot draw on the principal for their own needs. They may, however, withdraw principal to make gifts to other family members. In the unlikely event that you ever need to terminate the trust, that is still possible provided your trustees and your beneficiaries agree to the termination.
The principal generally stays in the trust until the death of the trustor, at which time the trust assets pass directly to the heirs, without the expense and delay of probate.
The applicant and spouse need not put everything they own into the Irrevocable Trust. We generally recommend putting in certain assets, such as liquid assets which are subject to capital gains and are drawing interest anyway. The trustor can keep as much of his assets as he desires outside the trust as is needed to maintain his financial independence. Any assets left outside the trust, however, should always be held jointly or in a separate living revocable trust or jointly with someone else, in order to avoid probate.