There are several different types of trusts that people use
for estate planning. While most fall into specific
categories, it is important to understand that trusts are
highly individual creations - one size does not fit all. Be
wary of firms who offer a cookie cutter approach or a “kit”
to create your own. Any trust (indeed all estate planning
activities) should be designed with careful consideration
and thoughtful legal consultation. Be aware that when
establishing some trusts, you may limit your options in the
future.

A “revocable trust” may be established to set aside certain
assets in the event that the individual becomes
incapacitated. These assets never technically leave the
person’s ownership, so the assets are still considered part
of one’s estate when one applies to Medicaid for benefits.
The value of a revocable trust is that you can designate a
professional to manage your finances, receive income from
the trust, and potentially reduce expenses associated with
settling your estate at death. With a revocable trust the
individual can change the terms of the trust at any time.

An “irrevocable trust” is also referred to as a “Medicaid
Trust.” Assets are transferred into a new legal entity that
then owns those assets. These assets are then no longer
considered part of your taxable estate. By shifting assets
into the trust, you may now be eligible for Medicaid
benefits, but subject to the specific “look-back” rules of
your county (see below). When setting up the trust, you
determine who will receive the assets, regular payments,
and income from the assets. Irrevocable trusts may also be
used as an entity to own one’s life insurance policy.

This is a simplification of the process, so keep in mind
that estate planning involves a lot of “moving parts” that
should all be considered. Some types of transfers may
result in tax liabilities and future financial limitations.
Irrevocable trusts require that the individual give up some
degree of flexibility with the assets and may be expensive
to prepare. Once the trust is established, the individual
gives up all rights to the assets that are included in the
trust. You can not change the terms once it is finalized.

Since most people are concerned about spending down all of
their assets to pay for long-term care, they will establish
certain types of entities like trusts, give cash gifts to
children, spend money on exempt assets, or engage in other
legal financial maneuvers. You should make sure that your
financial activities are legal as well as the smartest use
of your assets. Even with perfectly legal activities, you
may compromise or delay some of your potential benefits.

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The author, Ronald E. Hudkins aggressively coordinates with
government agencies and organizations to compile
information to help consumers avoid deceptive business
practices.  A description of his education and experience
can be found at http://www.AssetProtectNow.com .