Philadelphia Elder Law Attorney
This is an "irrevocable" trust, and cannot be changed after it has been created. In most cases, this type of trust is drafted so that the income is payable to you (the person establishing the trust, called the "grantor") for life, and the principal cannot be applied to benefit your or your spouse. At your death the principal is paid to your heirs. This way, the funds in the trust are protected and you can use the income for your living expenses. For Medicaid purposes, the principal in such trusts is not counted as a resource, provided the trustee cannot pay it to you or your spouse for the benefit of either of you. However, if you do move to a nursing home, the trust income will have to go to the nursing home.
You should be aware that you cannot gain access to the trust funds even if you need them for some other purpose. For this reason, we advise you to always leave an ample cushion of ready funds outside the trust.
Should your trust hold property that has increased in value, such as real estate or stock, you (the grantor) can retain a "special testamentary power of appointment" so that the beneficiaries receive the property with a step-up in basis at your death. This will also prevent the need to file a gift tax return upon the funding of the trust.
Remember, the funding of your irrevocable trust can cause a period of ineligibility for Medicaid and must be coordinated with an overall plan that provides funding for long term care until Medicaid will be able to provide benefits.
