Jump to Navigation

How an Irrevocable Trust is used in Medicaid Planning

One way to divest yourself of assets for Medicaid Planning is to gift or transfer assets to an Irrevocable Medicaid Trust. The five year penalty period will apply to this gift/transfer.

1. Benefits of Irrevocable Medicaid Trusts

a. Use of the trust helps avoid probate because the trust rather than the older person's will directs where the property is to go. The trustee of the trust will manage the older person's assets, and the trust may be kept in place after the death of the grantor to help manage the assets for the spouse or children. Perhaps most importantly, the trust avoids the drawbacks of transfers of assets to children.

b. The trust can be left in place if the grantor dies, to withhold outright inheritance of the assets to the children.

c. The trust can protect nonexempt assets from depletion for payment of nursing home care.

d. The Medicaid Trust can hold any type of asset. Income can be distributable to the Medicaid applicant, his or her spouse, or the children. Principal can never be distributable to the applicant or his or her spouse. Principal distributions, if allowed at all, can be made only to the children.

2. Drawbacks to Irrevocable Medicaid Trusts

a. The main drawback is that, in order to be a Medicaid Trust, the trust must be irrevocable. The grantor loses control over and access to the principal. Irrevocability only upon incompetency or entry into the nursing home would cause the corpus to be an available asset.

b. If the applicant is incompetent, a trust cannot be established. The only option in this case is to use a Durable Power of Attorney previously signed to transfer assets out of the applicant's name.

c. The cost, the set-up fee and the management fee can be significant and must be considered when evaluating whether such a trust is appropriate for a client. The target client will probably have assets of $100,000 to $1,000,000 to be protected for Medicaid purposes.

d. The use of a trust may cause Medicaid to scrutinize all transfers more closely. For example, transfer of a residence into a trust with the elderly person retaining the right to live in the house may cause the Department of Job and Family Services the agency (who manages the Medicaid program) to argue that the person has retained an interest in the home sufficient to disqualify him from Medicaid benefits. To remedy this possible outcome, the transfer of a residence into a Medicaid Trust may be accompanied by a formal written lease with actual lease payments at fair rental value if the grantor or spouse remain in the home.

e. The Internal Revenue Code complicates the drafting of these Trusts. Although the Department of Job and Family Services does not apply tax law when evaluating transfers (to a Trust or otherwise), the tax laws do apply to these trusts for purposes of income, estate and gift taxes. The income, estate and gift tax ramifications must be carefully evaluated and discussed with the client.

Elder Law Calculator Golden Opportunities Watch This Week's Legal Tips!
How can we help?

Bold labels are required.

Contact Information

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.


Privacy Policy

Why Wills Won't Work

Want an estate plan that really accomplishes your goals? Get Armond Budish's latest book. Want to learn more? Click here

Bedford, Ohio

"Once again my sincere thanks for the thorough and efficient manner in which you've handled everything and given my parents complete peace of mind."

Concord, Ohio

"We cannot adequately thank you enough for your time, talents and expertise explaining what needs to be accomplished for our parents Medicaid applications. You were so thorough, so patient in listening to us whenever we began relating stories about family issues, and so knowledgeable. Thank you so very much for your competent direction."

Chagrin Falls Ohio

"We were greatly relieved as a family to have Laurie Steiner's guidance and great insight into elder care/family law as I moved my father and developmentally challenged sister to NE Ohio. With that brought layers of decisions from various factions of benefits/laws/governances. And during my father's final days she and her colleagues were amazingly astute and responsive as we considered all options should my father's condition linger. And more recently, an unusual, often misunderstood situation with my sister's Medicare Premium benefits when it was only Laurie that could bring any clarity to otherwise well-meaning staffs of people whose job it is to understand the complicated nuances the Medicare/Medicaid benefit system often presents."

Lyndhurst Ohio

"I and our family would like to thank you again for the kindness and professionalism you showed us during the last several months that were involved with taking care of my wife Again thank you very much and I would be more than happy to recommend your services to any interested party."

Strongsville, Ohio

"Laurie and Josephine deserve special recognition for their exceptional interest."

North Royalton, Ohio

"Jennifer Peck did an excellent job. Our whole experience was good and everyone was very helpful"

Mentor, Ohio

"Everyone was very friendly and made us feel at ease. It was our first time dealing with attorneys."

Seven Hills, Ohio

"Laurie Steiner explained everything excellently."

North Olmsted, Ohio

"Everyone has always acted extremely professional. Jennifer and Ann deserve special recognition because they both were understanding, kind, and very helpful to my wife and I."

Mayfield Hts., Ohio

"All Staff have been great!"

Mayfield Hts., Ohio

"Your staff was so helpful for me to understand it all. You made this all so easy for me-was a wonderful experience."

Akron, Ohio

"Thanks so much for all your expertise and patience."

Stow, Ohio

"Once again your firm has provided outstanding legal services, that I have come to expect and appreciate."

Solon, Ohio

"You've always been very responsive, kind and helpful, and all three are greatly appreciated."

Middleburg Hts., Ohio

"My sister and I have truly appreciated all your help and your firms help throughout this whole situation with our mom as everything was handled in a very professional manner."

Read All Client Testimonials
Office Location

Phone: 216-245-0185
Toll free: 1-866-642-0932
Fax: 216-595-2787
Email: Contact Us

Commerce Park IV, Suite 450
23240 Chagrin Boulevard
Beachwood, OH 44122

6100 Oaktree Blvd.
Suite #200 - Park Centre 1
Independence, OH 44131

159 Crocker Park Boulevard
4th Floor
Westlake, Ohio 44145

  • Become A Facebook Friend With BSS&P
  • LinkedIn Become a BSS&P Firm Connection
  • Follow BSSPOHIO on Twitter
  • manta member
Budish, Solomon, Steiner, & Peck
Recipients of the 2005 BBB Torch Award
Honoring Businesses of Integrity

Charter Member ElderCare Matters Alliance NAELA / National Academy of Elder Law Attorneys, Inc. Member
Cleveland Metropolitan Bar Association ASNP
Listed on  ElderCare Websites