July 27, 2011
This post is the first in a two part series covering the financial advantages of Irrevocable Income Only Trusts. Part Two covers Important Considerations for Irrevocable Income Only Trusts
At Wokwicz Law Offices, we routinely meet with our clients to plan how best to manage their expenses. This sort of review is particularly important when our clients are considering long-term nursing-home care and how to qualify for Medicaid or Medical Assistance for that care, while still protecting financial assets for loved ones.
Stop Nursing Homes From Taking Your Assets
With proper advanced planning, you can protect your assets from nursing homes.
Although gifts frequently come to mind as an option, outright gifts to children are often not the best technique to protect one’s assets. In fact, gift giving can expose assets to abuse by a greedy child or child’s spouse, or encountering creditor risks if the child is sued, is involved in an accident or runs up debt. You don’t want to lose your house or savings as a result of financial or circumstantial issues that your child may encounter.
Another common approach is to use a “life estate” plan to protect a house or cabin from nursing home costs. However, this solution often places the house in the name(s) of a child or children, which may not be ideal in certain situations.
Introducing the Irrevocable Income Only Trust
A power and flexible technique that many of our clients have utilized to protect their assets is to use a properly drafted Irrevocable Trust, known as an Irrevocable Income Only Trust or an Income Only Trust. The use of these specially drafted trusts has become increasingly popular as a tool to protect your home and other assets from nursing home costs.
While protecting one’s assets from nursing home costs, an Income Only Trust is still able – as the name suggests – to provide income to the individual establishing the trust. It also allows that same individual to qualify for Medical Assistance or Medicaid. Thirdly, Income Only Trusts go a long way to help avoid probate.
Although similar to an Income Only Trust, a Revocable Trust will not protect assets from the nursing home in most situations, because the creator of the trust retains the right to revoke the trust and thus, can receive the assets back from the trust. Accordingly, an Irrevocable Trust is a more secure tool in protecting assets from a nursing home, specifically because it is irrevocable.
In order to qualify for nursing home protection, an Irrevocable Income Only Trust cannot allow the person setting up the trust to receive the principal asset back from the trust “for any reason”. Still, that person can receive income from the trust. By transferring assets, such as a house, cabin, stock, or bank accounts to an Income Only Trust, the one who established the trust can still use the house and receive income from stock and bank accounts. Meanwhile the assets will still be protected from the nursing home.
Irrevocable Income Only Trusts can be very useful tools to keep your assets protected while allowing you the income and access to nursing home care that you need. Please check back in two weeks for our overview of some important details of Irrevocable Income Only Trusts.