May 14, 2021


equality opinion

What Are The Benefits Of Using Irrevocable Trusts In Medicaid Planning?

In the U.S., the federal and state authorities run Medicaid programs to help people with...

Understanding the Role of an Irrevocable Trust in Medicaid Planning

In the U.S., the federal and state authorities run Medicaid programs to help people with limited income and resources get affordable healthcare facilities. Medicaid planning is one of the many types of assistance provided to a person who has applied for Medicaid. Like most other things, Medicaid planning can be as simple as gathering necessary documents or as complicated as restructuring the entire financial assets. Lawyers at estate planning law firm Virginia Beach often resolve their clients’ queries regarding irrevocable trusts in Medicaid planning. Making gifts to someone loved can be done without creating a trust or preparing deeds. However, when it comes to Medicaid planning, the benefits of outright gifting get nullified.

In this blog, we have listed done some benefits of having an irrevocable trust in Medicaid planning.


Protection of Assets from Future Creditors:

Gifting in a trust protects the assets from going into the hands of beneficiaries’ creditors. The spendthrift provision in the gifting trust makes the assets immune to garnishment, foreclosure, or other undesirable treatments by the beneficiary’s creditors.


Preservation of Step-Up of Basis:

Under Section 1014 of the Tax Code, appreciated assets in the deceased person’s taxable estate receive step-up of basis at the time of the death. A step-up in basis is a method of readjusting an appreciated asset’s value for federal tax purposes. The assets included in the decedent’s estate and trust receive a step-in basis, which is the assets’ market value at the time of their death. This helps in minimizing the capital gains tax of the beneficiary.


You can choose who should be taxed for Trust Income:

When creating an irrevocable trust, your trust and estate attorney might have mentioned the Grantor Trusts. For tax purposes, the Tax Code considers grantor trust as owned by the grantor or settlor. When doing Medicaid planning, you should thoroughly consider income tax issues and whether grantor or non-grantor trust meets your taxation needs. If you wish that the income incurred in the trust should be taxed to the beneficiary and not you, you should go for non-grantor trust.


You can decide who will receive the trust income:

In outright gifting, the donor has to give up the right to receive income from the gifted or transferred assets. However, through an irrevocable trust, the donor can reserve the ownership right to trust income. While this provision sure looks attractive, any income coming out of the trust to the settlor is considered for Medicaid eligibility. Thus, it’s best to hire a qualified trust and estate lawyer to pen out the best Medicaid plan.


Make trust assets non-countable for government benefits:

Unfortunately, the doner or the one getting a donation or outright gift or bequest becomes ineligible to receive governmental benefits that they were previously eligible for. Unless the bequeathed assets are not fully used up, the doner remains ineligible for government benefits. Poor Medicaid planning can cause such issues and put a beneficiary in a tough spot. However, through irrevocable trust’s self-settled special needs trust provision, you can choose to make trust assets non-countable for the receiver’s governmental benefits.