Issue 23.10
The most common trust drafted by an estate planning attorney is a revocable trust. And, as the name implies, a revocable trust can be revoked, changed, or amended by you at any time. This kind of trust is very flexible and can be designed to control all of your property, even if disabled, and if you have put all of your assets in the name of the trust, it totally avoids probate of your estate.
An irrevocable trust, on the other hand, cannot be altered or amended without the approval of a court. When you put your assets in an irrevocable trust, you are making a gift of your property to your loved ones (called “beneficiaries”) – but with “strings attached.” You can still have certain control over these assets by setting up the ground rules that your trustee must follow. And just like a revocable trust, the assets you put in the name of the trust will avoid probate.
What most people get mixed up about is, they think once they put their assets into a revocable trust – that they have protected them from their creditors (like medical bills, judgment creditors, credit cards, personal injury claims etc). However, that idea is false. Since its revocable, and you yourself can change, amend or revoke it – – the law says its only fair that your creditors can do the same thing. So, there is no asset protection with a revocable trust.
What about an irrevocable trust? When you put your assets into an irrevocable trust – – you really are giving them away. You have no legal right to take them back. And since you can’t get to them, the law doesn’t let your creditors get them. Now, there are some rules and circumstances that must apply to you. And you can’t put your assets into an irrevocable trust to defraud or hide them from your existing creditors, or those that you know are likely to have a claim against you.
Why use an irrevocable trust for Medicaid planning? For Asset Protection. When it comes to Utah Medicaid planning, putting your assets into an irrevocable trust performs the very important step of starting the clock on the 5 year “look-forward” penalty period. The special type of irrevocable trust I draft for clients can protect their assets from the “spend down” requirements Medicaid will require (the Medicaid recipient can only have $2,000 in countable assets). Now, to protect all of the assets you put in the trust, you must wait 5 years. However, if you don’t make it 5 years my planning strategy still has options to protect as many of your assets as possible.
I can’t explain all of the details here, and each situation is different, but if you can imagine a time in the future that you may need nursing home care and would like to plan for that now, I encourage you to give me a call at 435-673-9180 to schedule a free consultation to discuss your specific options. Planning as early as possible will make a huge difference in qualify for Medicaid benefits. And with nursing home costs running $6,000 per month, your assets can quickly disappear.