Using trusts to plan for retirement

In a recent post, we discussed some ways that estate planning might be combined with retirement planning. For example, an individual may be concerned that an unanticipated medical event may quickly deplete his or her assets. An individual may want to shelter some of his or her estate from nursing homes or other medical or long-term care expenses.

Fortunately, an attorney knows that there are different kinds of trusts for accomplishing an individual’s estate planning objectives. For example, readers may have heard of a type of trust called a Medicaid trust. The term refers to a specialized trust designed to help an individual preserve some of his or her estate, while still meeting the asset ceiling imposed by Medicaid laws. Although estate tax laws may discourage an individual from using trusts as a tax shelter, the fact remains that smart estate planning can provide savings and preserve assets.

Whether assets in a trust are counted against an individual’s Medicaid asset limit typically depends on whether he or she has control over those assets. In an irrevocable trust, the assets have essentially been given away to the trust, and an appointed trustee has control over their management, subject to the terms of the trust arrangement. For that reason, the principal in an irrevocable trust usually doesn’t count as part of an individual’s personal wealth, provided that the trustee is not authorized to pay that principal to the individual grantor.

Notably, the income from the irrevocable trust can still be used to pay for the individual’s living expenses, usually accomplished by having the individual named as a beneficiary of the trust. An attorney can also explain whether creating an irrevocable trust might make one ineligible for Medicaid for up to five years.


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