May/June 2018

The Value of Using Irrevocable Trusts in Medicaid Planning

Why should you use an irrevocable trust in Medicaid planning? Medicaid has a five year look back period for any uncompensated gifts. Uncompensated gifts made within this period are penalized which means the applicaint cannot receive Medicaid long-term care benefits based on a penalty formula.

So why not make an outright gift without the expense of an irrevocable trust. The potential applicant can wait five years before filing for Medicaid. However, there are substantial benefits to using an irrevocable trust in Medicaid planning.

Key benefits of gifting in trust are:

  • Asset protection from future creditors of beneficiaries;
  • Preservation of the Section 121 exclusion of capital gain upon sale of the settlors' principal residence (the settlor is the trustmaker);
  • Preservation of step-up of basis upon death of the settlors;
  • Ability to select whether the settlors or the beneficiaries of the trust will be taxable as to trust income;
  • Ability to design who will receive the net distributable income generated in the trust;
  • Ability to make assets in the trust noncountable in regard to the beneficiaries' eligibility for means-based governmental benefits, such as Medicaid and Supplemental Security Income (SSI);
  • Ability to specify certain terms and incentives for beneficiaries' use of trust assets;
  • Ability to decide (through the settlors' other estate planning documents) which beneficiaries will receive what share, if any, of remaining trust assets after the settlors die;
  • Ability to determine who will receive any trust assets after the deaths of the initial beneficiaries.

Please do not make any such transfers unless you consult with an elder law attorney who understands Medicaid the transfer of asset rules and irrevocable trusts.

Edward Zetlin Law is experienced in Medicaid Long-Term Care Planning; Guardianship, Conservatorship, Estate and Special Needs Planning. Don't hesitate to call if you face such an issue or if you have additional questions. Edward Zetlin Law would be happy to discuss. Please contact us at 703-379-0442 or e-mail at

Community Presentations: Edward Zetlin will give a webinar on behalf of the Fairfax Agency on Aging. The topic is Legal Tools for Caregivers. The webinar is scheduled for June 20 at Noon. To obtain more information and to sign up for the webinar go to or call Lucy Gerland at 703-324-5849.

Contact us at (703)379-0442;

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