A trust is a type of legal device that is used in the field of estate planning, and there are multiple different types of trusts. Contrary to a widely held belief, every trust is not an asset protection trust.
One major distinction between trusts is the power of revocation, and this has everything to do with asset protection capabilities. There are trusts that can be revoked or dissolved, and there are also irrevocable trusts. Let’s examine the details.
Revocable Living Trusts
Revocable living trusts are very popular, and you could potentially benefit from the creation of a revocable living trust even if you are not extraordinarily wealthy. As the name would indicate, you can revoke this type of trust, so you could change your mind, dissolve the trust, and walk away with the assets back in your pocket.
You will probably never want to revoke the trust, because you would be creating it as the centerpiece of your estate plan, but you do not have to worry about losing control while the trust is intact. The person who creates a revocable living trust is called the grantor in legal parlance, and the estate administrator is called the trustee.
The grantor will typically act as the trustee at first, so you can direct the actions of the trust throughout your life when you establish a revocable living trust. The trust creator can also act as the beneficiary.
When you create the trust declaration, you name a successor trustee to take over after you pass away, and you name successor beneficiaries who will receive distributions from the trust after you are gone.
One of the advantages that you gain when you use a revocable living trust is the ability to leave behind instructions that the trustee must follow regarding the nature of the asset distributions to the beneficiaries. You may have concerns about beneficiaries spending their inheritances too quickly. If you feel this way, you could instruct the trustee to distribute limited assets on a monthly basis over an extended period of time.
Another advantage is the facilitation of probate avoidance. If you maintain direct personal possession of your property until the time of your death, and you arrange for its transfer through the terms of a last will, the will would be admitted to probate after your passing. The heirs would have to wait out this process before they could receive their inheritances, and it will take close to a year at minimum.
Since you can revoke this type of trust, the assets would be looked upon as your personal property, because you retain incidents of ownership. This sounds appealing on the one hand, but there is another side to the coin.
Many senior citizens seek Medicaid eligibility at some point in time, even if they were qualified for Medicare. This is because Medicaid will pay for nursing home care. Medicare will pay for convalescent care after surgery, but it will not pay for custodial care, and this is the type of care that you would receive in a nursing home.
Medicaid is only available to people with financial need, so you cannot qualify if you have significant assets in your own name. Assets in a revocable living trust would count, so you would not want to use this type of trust to prepare for future Medicaid eligibility.
Nursing Home Asset Protection Trusts
To qualify for Medicaid, people often give assets to their loved ones. Of course you could give direct gifts, but you could also convey assets into a Medicaid trust.
A Medicaid trust would not be a revocable trust; it would be an irrevocable trust. Assets in a revocable living trust would be counted by Medicaid, because you retain control of the resources, and you can dissolve the trust and take back the assets at any time.
Things are different with an irrevocable trust. You cannot revoke the trust, and generally speaking, you cannot alter the terms of the trust after it has been created. This is called surrendering incidents of ownership. Because you have surrendered ownership, assets that have been conveyed into an irrevocable Medicaid trust would not be counted by Medicaid administrators when your eligibility status was being determined.
If you are concerned about income, you could continue to receive income from the earnings of a Medicaid asset protection trust before you apply for Medicaid, but you would not be allowed to access the principal.
Contact Us to Schedule a Consultation
We can help if you would like to discuss nursing home asset protection with an elder law attorney. Call us at 860-548-1000 or send us a message through our contact page to set up a consultation.