FREQUENTLY ASKED QUESTIONS: Irrevocable Trusts

The Law Offices of Cheryl David receives a lot of questions from families on what they need to know when they establish an Irrevocable Trust for asset preservation purposes and Medicaid. When a loved one enters into a nursing home or receives a bad diagnosis, families often contact us for guidance on how they may start protecting their hard-earned wealth. One solution may be an Irrevocable Trust. It’s important to manage your trust with the utmost care. Failure to follow the proper steps may invalidate the trust and result in your plan failing.

Frequently Asked Questions on Irrevocable Trusts 

What is a Medicaid Irrevocable Trust?

A Medicaid Irrevocable Trust is a contract which if precisely followed over time protects assets for Medicaid purposes.

What is the difference between a Revocable Trust and an Irrevocable Trust?

A Revocable Trust may be changed at any time and the individuals who set it up have total control of their assets. An Irrevocable Trust can’t be changed and the people who set it up don’t have total unlimited control over the assets. While a Revocable Trust may sound like a better way to handle things than an Irrevocable Trust, the Irrevocable Medicaid the Trust gives us the opportunity to qualify for benefits while the Revocable Trust doesn’t.

How does the Medicaid Irrevocable Trust protect assets so that you may qualify over time for Medicaid benefits?

When you place assets in the Irrevocable Trust you give up your right to control them. When you give up your right to control your money and your real estate, you limit your ownership. Because you no longer may access your principal, it is no longer countable as yours when you’re applying for benefits. The amount of assets you have placed into the Irrevocable Trust and the amount of time that has passed since the transfers were made determine when you will qualify for benefits. It is imperative that all records and receipts are kept!

How do I know how much money to put into my Medicaid Irrevocable Trust?

This is a delicate balance which your attorney will assist you with. Typically, a portion of money is left out that may be used to cover the time where you are not eligible for Medicaid benefits. Typically, this is 5 years.

When I create the Medicaid Irrevocable Trust will I qualify for Medicaid Immediately?

No. Qualification for Medicaid depends on many factors, including the amount of money you put in the trust, the money outside the trust and how long the money has been in the trust. There is a Five- Year Penalty Period for assets transferred to the trust. When you apply for Medicaid you need to disclose to the government the assets you’ve put in the trust for the last five years. Often one of the goals is to get past the five-year period where the government looks back before applying for benefits. If you need to apply before the five-year period has expired, a penalty period may be calculated at the time the Medicaid application is submitted. During that time, you are not eligible for benefits. Because each transfer of assets into the trust causes a penalty period, we recommend not adding money to the Trust without consulting your attorney because often it causes an adverse penalty period and messes up the original planning.

Should checks I receive monthly from Social Security and my Pension go into my Medicaid Irrevocable Trust?

Monthly checks that come to you such as Social Security and Pension should not be added to the Medicaid Irrevocable Trust. Adding such assets to your trust may restart a 5-year lookback period for those assets. Again, it is important to discuss adding additional money to the Irrevocable Trust with your attorney to weigh the pros and cons.

May I make repairs to assets in the trust or use money outside the trust to set up accounts or pay fees?

You should not ever use money outside the trust to repair assets in the trust such as real estate, pay fees or set up accounts. That is considered an addition to the Trust which may cause an additional penalty period or lookback period.

Do I receive the income that my Medicaid Irrevocable Trust generates?

Your Trust may or may not allow the grantor to receive income from the Trust. It is important to discuss this topic with your Elder Law attorney.

Is there a way in an emergency to access principal?

Yes. Sometimes principal is needed to save the day. If this occurs, I will advise you or your trustee how to legally access principal without violating the terms of the trust. This should not be done without an attorney’s assistance and it is imperative that all records and receipts be kept. NEVER pay providers directly from the Medicaid Irrevocable Trust. This will corrupt your Medicaid Irrevocable Trust and that money will not be protected. There is a special way the Trust can be accessed in emergencies; we advise all of our clients to contact us if they EVER need to access principle. Moreover, your children should not take money out of your Medicaid Irrevocable Trust for themselves.

What happens if I need nursing home assistance before the 5-year time limit is up?

If this occurs, please contact me and I will advise you or your trustee.

What happens after the 5-year Lookback expires?

At this time, please contact me and we will schedule a meeting to determine if now is the appropriate time to put in a Medicaid application or spend down assets which were left out of the Trust. Remember, laws can change, so it is important to contact your attorney at the end of 5 years to determine what, if any, law changes may affect your plan.

When I create the trust, may I decide who receives my assets in the Medicaid Irrevocable Trust when I die?

Absolutely! Not only may you decide who should receive the assets when you are deceased, but you may change the beneficiaries during your lifetime.

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