Irrevocable and Revocable Trusts are excellent estate and elder law planning tools that, depending on your objectives, can both be of significant value when used as part of your planning. Here we'll take a closer look at the Irrevocable Trust and its most common uses and benefits.
There are various types of Irrevocable Trusts, each with differing purposes and objectives. For example, if you would like to gift assets during your lifetime for the benefit of your children and/or grandchildren, an Irrevocable Trust might be an appropriate vehicle. If you have a disabled child and/or grandchild an Irrevocable Special Needs Trust is often utilized. If you have significant life insurance assets and don't want the assets to go outright to the beneficiary (and also don't want the life insurance death benefit to be part of your taxable estate), an Irrevocable Life Insurance Trust is often utilized.
Perhaps the most common Irrevocable Trust utilized by seniors today is the Irrevocable Medicaid Asset Protection Trust (also referred to as an Irrevocable Income Only Trust). Unlike a Revocable Living Trust, this Irrevocable Trust cannot be amended and/or revoked by the creator, and neither the creator nor his or her spouse should be appointed as trustee of said trust.
The primary purpose of the Irrevocable Medicaid Asset Protection Trust is to shelter assets so that if one needs home care and/or nursing home care services in the future, the assets titled in the name of the trust are not counted as available resources for purposes of Medicaid eligibility and are not resources against which Medicaid has a claim and/or lien against for the value of the services they have provided.
The transfer of assets to the Irrevocable Trust will disqualify the creator of the trust and his or her spouse from eligibility for nursing home Medicaid (not Medicaid home care) for five years (known as "the look back period"). Once the five years have elapsed, however, the assets in the trust are no longer available resources for purposes of Medicaid eligibility and Medicaid cannot file a claim and/ or lien against the trust assets. An Irrevocable Medicaid Asset Protection Trust is ideal for individuals wanting to protect their home and a portion of their life savings against the ravages of the cost of long-term care. With the average cost of a nursing home in the New York Metropolitan area being in excess of $15,000 per month, failing to do so can have dire consequences.
Unlike the Revocable Trust, an Irrevocable Trust does not allow the trustees to distribute the trust principal to or for the benefit of the creator(s). However, the trust creator(s) can receive any income generated by the trust assets and have the right to reside in and utilize any real property transferred to the trust during their lifetime. The trust creator will continue to be able to utilize any tax exemptions available such as STAR, Senior Citizen and Veterans, and can also take advantage of the personal residence exclusion for income tax purposes in the event the residence is sold.