Top Misconceptions about Medicaid Irrevocable Trusts
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Top Misconceptions about Medicaid Irrevocable Trusts

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“I can’t be my own trustee.”

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.

“My trustee is going to be in control, not me.”

In the event the trustee does not comply with a request, you, as Donor of the trust, retained the ability to remove and replace the trustee at any time and would thereby simply remove the trustee and put in a trustee who is willing to complete your requested transaction. The removal and replacement process is simple and can be completed by simply calling the attorney who helped you draft the trust and he or she will prepare a one page removal of trustee document and a one page appointment of a new trustee document for your signature.

“I live on the income from my assets so I can’t use the income from my trust.”

Nothing could be further from the truth as the trust itself is referred to in the legal world as an irrevocable income only trust. The very terms of the trust state that during the life of the donor the trustee shall pay all the income from the trust to the donor or the creator of the trust. For example, if you put a portion of your investment portfolio into the irrevocable trust and it generates interest and dividends, they will be paid out of the trust to you for you to spend them as desired. This is generally important to clients as they may be using such investment income to supplement their other retirement income. In other words, your income level does not change even after you contribute assets to the irrevocable trust.

 

Securities offered through Securities America Inc., Member FINRA/SIPC and advisory services offered through Securities America Advisors, 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