The Locked Treasure Chest of Irrevocable Trusts

Over the past month, we have examined the uses of and differences between Revocable Trusts, Living Trusts, Testamentary Trusts, and Special Needs/Supplemental Needs Trusts.  This week, we will discuss the Irrevocable Trust and how it might be utilized when discussing your Estate Plan and/or Long Term Care.

An Irrevocable Trust, which may also be called an Asset Protection Trust, can be used for both Estate Planning and Medicaid Planning purposes.  This particular trust is one that cannot be changed after it has been created.  We often compare irrevocable trusts to a treasure chest when explaining to clients how they are used, Once property and assets are transferred into the chest, it is closed and locked and the contents cannot be touched by the creator of the trust. However, if the irrevocable trust is properly designed by an experienced elder law attorney, it can still allow the creator to maintain some control over, and in some instances even use of, the assets transferred into the trust (including their home).

In most cases, an irrevocable trust is drafted so that the income is payable to the person establishing the trust (called the “Grantor”) for life.  However, the principal of the trust cannot be applied to benefit the grantor or the grantor’s spouse. Upon the grantor’s death, the “principal” or “corpus” of the trust is paid to his or her children, grandchildren and/or other loved ones who are named as beneficiaries of the trust. This way, the funds in the trust are protected. One caveat to keep in mind when creating an irrevocable trust is that once property is transferred into the trust, legal title to the assets cannot be transferred back to the grantor, and the principal of the trust cannot be given to the grantor under any circumstances. The reason for this is that if the grantor is able to get the assets back, those assets will be considered available for nursing home purposes.

When utilized correctly, the principal of an irrevocable or asset protection trust will not be counted as a resource for Medicaid Planning purposes, provided that the trustee cannot pay it to you or your spouse for either of your benefits. Because of the protection that this type of trust offers, you also need to be aware of the drawbacks to such an arrangement. Since the trust requirements are very rigid, you will not be able to gain access to the trust funds, even if you need them for some other purpose. Consequently, before drafting these type of trusts, the attorneys at Zacharia Brown spend a great deal of time with our clients to determine their financial picture, as well as their family dynamics and relationships. These details play an important role when drafting the trust, deciding who will serve as trustee, and ensuring that the appropriate amount of funds and property are transferred into the trust and also reserved outside of the trust to serve as a “cushion” for any financial needs that may arise in the future.

The experienced attorneys at Zacharia Brown can advise you about Elder Law and Estate Planning with trusts and ensure that you are properly informed before deciding which options are best for you.  Please contact us at 724.942.6200 or visit us at PittsburghElderLaw.com  to schedule an appointment and learn about trusts today.