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Irrevocable Trusts and Medicaid – Part 1

       I’ve written about trusts many times on my blog over the years, specifically about how we get many callers asking us to take a look at an existing trust the caller has set up – or that a family member set up for the caller –  to advise on whether the assets in the trust are “protected” when it comes time to apply for long term care Medicaid benefits.

       A few weeks ago we received another such call.  Mary’s uncle left a will that directed part of his estate be left in trust for Mary.  During the course of the next 10 years, Mary’s sister as trustee managed and distributed the funds either to or for Mary’s benefit.  When Mary’s health declined she moved to a nursing facility, sold her home and used the proceeds to pay the $13,000 per month cost of care.

       She is now close to running out of funds.  The only other source of funds is the trust.  Mary and her sister, Betty called me to ask whether they must spend down the trust funds first before applying for Medicaid.  Betty offered up that “the trust is irrevocable.  Doesn’t that mean the assets are protected from Medicaid?”

       I explained that irrevocable simply means that the grantor (the person who established the trust) cannot “tear up” the trust agreement (ie. take the assets back) or amend the trust to change it in any way.  That would make the trust a revocable one, which is not protected.  In this case, Mary’s uncle died so it can’t be amended or revoked.

       But, not all irrevocable trusts are excluded by Medicaid when determining financial eligibility.  Said another way, “irrevocable” just describes one aspect of the trust.  If, for example, the irrevocable trust directs the trustee to use the funds to pay for Mary’s care in a nursing home then the assets would need to be completely spent down before she could qualify for Medicaid.

       I explained to Mary and Betty that the only way I could give her a clearer answer is to read the trust agreement.  They agreed to provide me with a copy.  Next week I’ll tell you what I learned from reading that document and what I told them.