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Assets in a Trust

Assets in a Trust

Q:   Why would I need to put my house into an irrevocable trust?

A:   There are many different types of irrevocable trusts.  One of the common types of trusts an individual can create is an irrevocable trust for Medicaid asset protection purposes.  As with any trust document, this type of trust can be written in many different ways.  Most often, the creator of the trust is allowed to receive all income generated from assets that are placed into the trust, but the creator of the trust is not entitled to distributions of principal.  For example, if the trust owns a brokerage account worth $100,000, the interest and dividends paid on the account will be payable to the you as the trust creator, but the corpus, or the balance of the account, will not be accessible to you.  If drafted properly, the assets in the trust will also be considered yours, as the creator, for tax purposes, including for income and estate taxes.

If a house or other piece of property is placed into this type of trust, it will not be considered your asset for the purposes of Medicaid eligibility and, after your death, the Medicaid program will not be able to place a lien on it for recovery for services paid to you.  As you may know, this protection is available to a home care Medicaid applicant in the month after the transfer of the home is made to the trust, and, for a nursing home Medicaid applicant, 5 years after the transfer is completed.

In addition to a primary residence or other piece of real property, there are certain other assets that may be placed into this type of trust to protect them from being considered an asset for Medicaid eligibility.  A life insurance policy with a cash surrender value is one such item.  If you are able to surrender your life insurance while you are still living, then this sum of money is considered to be yours when determining your eligibility for benefits.  In order to protect the value of the property, the owner of the policy can be changed so that the Medicaid asset protection trust becomes the owner.  Similarly, there may be reason to have the trust be the owner of certain types of annuities, investment accounts, individual stocks, treasury bonds, etc.  However, retirement accounts should not be placed into a trust during your lifetime as they have a different set of rules than other types of assets.

There are many options available for the protection of assets but this is not something you should try to accomplish on your own.  Consulting with an experienced estate planning and elder law attorney will ensure you protect your assets in a tax-efficient manor.

- Britt Burner, Esq. and Nancy Burner, Esq. 

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