Income trust

John and Mary are retired and have $400,000 in a savings account composed of bank CD's, Money Market Certificate and Bonds. They want to protect that money from Medicaid recovery it either one goes into the nursing home. There is a Medicaid approved Income Trust that they can use. It is an irrevocable trust where John and Mary are the Grantor's (creators of the trust) and their son James is the trustee and their children the beneficiaries. John and Mary can continue to receive the income from the trust but the principal is no longer in their estate and after five years not available for recovery by Medicaid. They can still have access to the principal but only through James the trustee releasing funds to the beneficiaries. An irrevocable trust is a very powerful tool for Medicaid Asset Protection, as it allows you to shelter assets from a nursing home after they have been in the trust for five years. Even though sometimes people worry about ever being able to access that money, there is, in fact, a way to do that. Most irrevocable trusts provide Medicaid Asset Protection by not allowing you, the Grantor and Trustee, the ability to access the principal that’s placed into the trust. However, you do have the ability to make distributions of principal to the principal beneficiaries, who are usually the children. So, let’s say you and your spouse put a significant amount of assets into an irrevocable trust, and seven years later, decide you would really like to see the world. In that instance, you simply make a distribution of principal from your trust to a principal beneficiary. The beneficiary is then free to use that money as they see fit – in this case, buying a pair of around the world cruise tickets for their parents. Thus, in certain instances, it is possible, indirectly, to access funds that you have placed into an irrevocable trust in order to protect assets from a nursing home.