irrevocable income only medicaid asset protection trusts

Learn More About Irrevocable Income Only Medicaid Asset Protection Trust and Its Many Benefits

IRREVOCABLE INCOME

ONLY MEDICAID ASSET

PROTECTION TRUSTS

STEPHEN A. UNSWORTH VERMONT ESTATE PLANNING ATTORNEY

www.UnsworthLaw.net Irrevocable Income Only Medicaid Asset Protection Trusts

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Many Americans feel as though their choices are limited when it comes to

preparing for Medicaid qualification. Many can’t afford long term healthcare

insurance and unfortunately, they are unaware of the benefits of an

Irrevocable Income Only Medicaid Asset Protection Trust, also

known as an IIOMAPT, allows for additional options. Too many times,

assets are put into a joint ownership

with a person’s adult children, with the

belief that they’re protecting them once

the Medicaid 5 year look back period

begins. That’s not the case, though and

once you’ve done that, it’s like a bell: it

can’t be unrung in terms of what the

look back finds. If you place your assets

in the sole ownership of someone else, not only will it turn up in the look

back (if it’s been within a 5 year period), but the new owner – usually your

adult children – might have their own problems that could affect any new

assets they acquire. Creditors, divorce – anything like that could jeopardize

the assets as a whole. Your goal is to protect the assets, not shift risks.

These types of trusts are becoming increasingly popular and while they’re

irrevocable – meaning you surrender your ownership and cannot change it

in the future – the benefits are many and solve a lot of problems for

seniors.

The IIOMAPT puts into place someone besides yourself or your spouse to

serve in the role as trustee – usually an adult child, maybe two or three of


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your adult children – it’s quite versatile. You continue to receive the

income, but it must be set up to ensure you do not have access to the

principle.

If you’re receiving other benefits, such as Social Security, it doesn’t affect

any of that. Properly put into place by an elder care lawyer ensures the

integrity of your efforts remain in place and also protects the full capital

gains tax exclusion on your primary residence. The home may be sold by

the trust without obligation to make payment of any of the principal

towards the client’s care, even if you are past the look back period. It’s an

easy to manage and understandable dynamic for many seniors. Your elder

law attorney is always going to be your best resource since laws change

and state laws often have their own dynamics at play.

The trust may buy and sell and trade stocks and other assets. IRA’s and

other qualified plans stay out of the trust since the principal of all such

retirement plans are exempt from Medicaid. These types of assets avoid

probate as they go directly to the designated beneficiaries at death.

Life Estate Deeds and Trusts

It is true that a deed with a life estate is less expensive, it’s the benefits

clients are most drawn to. There are disadvantages, too, when mirrored to

the trust.

If the home is sold prior to the death of the Medicaid recipient, the life

estate value of the home is paid towards the care the recipient received. If


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the home is being rented out, the rental payments must be made to the

nursing facility since they belong to the life tenant.

Also, the recipient will lose a significant portion of their capital gains tax

exclusion for the sale of their primary residence as they will only be entitled

to a pro rata share based on the value of the life estate to the home as a

whole.

In short, it could result in the family being forced to maintain a home that’s

vacant – and it could be for several years. On the other hand, a properly

drafted trust will preserve the full capital gains tax exclusion on the primary

residence and the home may be sold by the trust without obligation to

make payment of any of the principal towards the client’s care, assuming

we have passed the look-back period.

Here are a few more considerations that might help in determining your

best options:

You cannot take any capital gains

from the trust’s assets nor can

you withdraw any of the principal.

You can’t use the trust to pay your

household bills, such as utilities or

groceries. You also may not use it

to purchase a new car or pay for

other personal expenses. Retirement accounts or IRAs cannot be moved to


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the trust. Any gifts that are made from the funds in the trust may not be

returned to that trust by the beneficiaries. Your elder law firm must be

made privy to any kind of additional trust transfers ahead of time.

You can, however, use your trust assets to make repairs and maintenance

efforts on the property in the trust. Your transfers to the trust should be

made in a timely manner. Taxes on real estate and insurance premiums on

property may not be paid out of the trust. You must take dividends and

income on trust assets on at least a quarterly basis. Any gifts made to any

of the beneficiaries must be reported to your elder law attorney and if a

grantor needs Medicaid or if he or she dies, you also need to let your

attorney know since it too changes the dynamics. Provide your

homeowner’s insurance company with what is referred to as a “letter of

instruction” which spells out how the property is transferred. You’ll need to

have the trustees added as well. The same goes for your CPA or

bookkeeper.

For many, these trusts have presented a viable option where none were at

one time. It’s proven to be an ideal solution for many, but always seek

legal advice from a trusted elder law attorney to ensure it’s best for your

needs and that it is compatible with other estate planning tools you’re

already incorporating.


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About the Author

Stephen A. Unsworth has over 30 years of experience in estate planning and business law. Stephen directs the Legacy Wealth Planning group and devotes his practice primarily to estate planning, elder law, asset protection, and business law. His mission is to provide quality estate planning resources, including assistance with Living Trusts, Wills (simple & complex), Probate, Trust Administration, Powers of Attorney, Trusts, Medicaid and Special Needs Planning, and Family Limited Partnerships.

Stephen is admitted to practice law in both Vermont and Maine. He is a member of the Vermont Bar Association, the Maine Bar Association, the Chittenden County Bar Association, the American Academy of Estate Planning

Attorneys, the National Academy of Elder Law Attorneys, and the Vermont Bar Association’s Elder Law and Probate & Trust Sections.

He previously served as a member of the Board of Governors of the AAEPA, President of the Chittenden County Bar Association, and Chairman of the Vermont Bar Association Continuing Education Committee for which he was awarded a certificate for being an outstanding chairperson. Stephen was also awarded a certificate of appreciation from a Vermont Administrative Judge for his work as an Acting Judge in Small Claims Court. He regularly presents at continuing legal education seminars for attorneys and paralegals in Vermont and has taught business law courses at both the University of Vermont and Champlain College.

Stephen has been named a “Super Lawyer” by the New England Super Lawyers Magazine each year since its creation in 2007. This distinction- based on peer nomination, extensive polling, and independent research- ranks him in the top 5% of lawyers in New England.

Unsworth Law, PLC www.unsworthlaw.net Railroad Avenue Partners, Professional Building 26 Railroad Ave. Essex Junction, VT 05452 Phone: (802) 879-7133

irrevocable income only medicaid asset protection trusts

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