An Operational Guide to the Use of Irrevocable Medicaid Income Only Trusts
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An Operational Guide to the Use of Irrevocable Medicaid Income Only Trusts

Question:   
Who can be the Donor of these irrevocable trusts and what does that mean?

Answer:
The Donor is referred to as the individual who creates the trust.  The Donor may also retain certain powers over the trust, most importantly, the power to remove and replace a trustee at any time for any reason, provided, however, that the replacement trustee can never be the Donor of the trust.  This retained power by the Donor allows the Donor to retain a significant degree of control over the operation of the trust, even though the Donor does not serve as trustee.  In addition, the donor will also be an income beneficiary of the trust.

Question:   
Who can be the trustee of these irrevocable trusts?

Answer:
Often times, the Donor would like to serve as trustee of the trust thereby significantly increasing the Donor’s control over the operation of the trust assets during the Donor’s life.  There is support for this position in Massachusetts where there is a case entitled Ledger vs. Department of Medical Assistance in which the Court indicated that, while this may appear to be an unappetizing maneuver, it nonetheless fails to contravene any rule or regulation.  However, there has since been another case known as the Muriel Doherty case in which the Appellate Court in Massachusetts indicated that the irrevocable trust was not drafted properly and provided too much control to the Donor, whereby causing the assets of the trust to be at risk.  Therefore, it is the recommendation of this author that, if the Donor of the trust has children or trustworthy family members, that they serve as trustee and that the Donor relies on his or her power to remove and replace the trustee, as mentioned above, in order to provide a comfort level when implementing these irrevocable Medicaid trusts.

Question:   
Does the sale of a home from the irrevocable trust re-set the Medicaid five year lookback period?

Answer:
The five year lookback period is unaffected, and, in fact, not reset by the selling of a home from the irrevocable trust, since nothing new was placed into the trust.  The five year lookback period starts to run on the day an asset was transferred from an individual’s own name into the irrevocable trust and not the day the trust sells the property. 

 

Securities offered through Securities America Inc., Member FINRA/SIPC and advisory services offered through Securities America Advisor, Inc. Armstrong Advisory Group, Cushing & Dolan and The Securities America Companies are unaffiliated.  Representatives of Securities America Inc. do not provide legal or tax advice.  The scenarios provided are for illustrative purposes only and not intended to represent client experiences of Armstrong Advisory Group or the Securities America companies.  Please consult with a local attorney or tax advisor who is familiar with the particular laws of your state. August 2012