An irrevocable trust is an estate planning tool designed to protect assets that may appreciate over time. When an individual establishes an irrevocable trust with identified beneficiaries, it cannot be changed by him or her without their consent, as all assets technically belong to them.
This is one reason why many people may qualify for Medicaid/MassHealth if all assets are held an irrevocable trust.
Creating an Irrevocable Trust
If you decide to create an irrevocable trust, you'll need to:
- Identify the homes, businesses, and other assets to be included in the trust.
- Identify the beneficiaries of the trust.
- Explain when the assets should be transferred to beneficiaries.
- Appoint a trustee who will distribute assets from the trust according to the directions you set forth in the trust document.
- Create the trust in accordance with all applicable laws.
In order to be considered an irrevocable trust, and to realize its potential benefits, the terms of the trust must explicitly prohibit you from changing it once created.
Benefits of an Irrevocable Trust
Transfer of assets into certain irrevocable trusts can protect them from being used as payment leverage against long-term care assistance.
For example, your home is one asset option that may be put into an irrevocable trust. You may be able to transfer it into a trust while reserving the right to live there for your lifetime and while controlling the position of trustee of the trust. In some circumstances, if this is done correctly, having your home in the trust removes it as a countable asset when applying for Medicaid/MassHealth.
However, this is where strategic estate planning is necessary. The transfer of your home into an irrevocable trust must be done at least five years before you seek application for MassHealth—sometimes referred to as the "five-year look-back" rule. If compliant, your home could then be off-limits to MassHealth’s asset calculation and protected for your trust’s beneficiaries. It's important to note that downsizing the home partway through that time period wouldn't have a negative effect.
Irrevocable trusts may be an important part of your estate plan and might have benefits if you apply for MassHealth benefits later. Contact Attorney Michael Monteforte, Jr. today for more information on irrevocable trusts and other estate planning tools that can help you protect your assets and meet your personal goals.