Irrevocable Trust Options for Long-Term Care

Income-Only Irrevocable Trust
An Income-Only Irrevocable Trust has several benefits for those who are able to take advantage of them. If it’s properly arranged to meet MassHealth’s strict guidelines, assets can be protected and MassHealth benefits can be used to pay nursing and disability care. You can even transfer an interest in your home to the trust, which can prevent MassHealth from touching it upon your death under its estate recovery policy. But because assets transferred into this kind of trust will be evaluated using the five-year look-back rule, not everyone has planned far enough in advance to set this up. If you have planned ahead so a proper Income-Only Irrevocable Trust can be arranged, you can be assured that your assets will be protected; and when the time comes, your beneficiaries will receive them according to your wishes. You’ll also be able to draw income from the trust to support your living expenses while Medicaid covers your care.

Testamentary Trusts
Medicaid and MassHealth permit married couples to use a “testamentary trust” to protect each other from a situation in which one passes away and the other needs nursing-home care. This tool requires a will (and therefore probate), and must therefore be arranged while they are both alive and competent.

The way a Testamentary Trust works is fairly simple: the estate of the first spouse to pass away goes into trust for the surviving spouse. The trustee (typically one of the couple’s children) has total discretion to spend money for the surviving spouse. The trust is funded by money flowing into it from the estate at the end of the probate process. (It’s true that, as a general rule, it is preferable to avoid probate, but this is a potential exception.) The funds in the trust are not counted in determining eligibility for MassHealth or Medicaid coverage. In many cases, this plan is less expensive than long-term care insurance and does not tie up property as an irrevocable trust would. Notably, this remains true even if the surviving spouse moves to another state.

Of course, there are trade-offs, the main one being lack of control. The child cannot control the distributions from the trust and still get the protection the trusts are designed to provide. However, the child may be given some aspects of control over the trust and still maintain some protection. The amount of protection is somewhat uncertain based on recent cases attacking asset protection trusts. The laws governing this vary from state to state, but the general rule is that the less control the child has, the more ironclad the protection will be.