The Listen to Lawrence Letter: Trust Income in an Irrevocable Medicaid Trust

Dear Clients and Friends,

Whenever I create an irrevocable Medicaid trust, I have to deal with the issue of what to do with trust income. Trust income leads to questions like the following:

CLIENT QUESTION:

I have an irrevocable trust. Stocks are included in the trust. Can I personally receive the dividends? If I cannot receive the dividends and I do, would this nullify the entire trust or just the total amount of dividends that were received? If I cannot personally receive the dividends, can the dividends be distributed by the trustees to the beneficiaries for further distribution to me?

MY RESPONSE:

When I create one of these trusts, I have to determine whether all trust income should go back to you or stay in the trust. Most elder law attorneys that I know draft the trust so that the income will be paid back to you. The pro of this is that you get to keep your income. The con of this is that if you can get the income, then Medicaid may get the income down the road. If you can get it, Medicaid can get it. It is always that simple.

Most of the trusts I create accumulate the income in the trust. The pro of this is that if you end up needing Medicaid, all of your trust income is protected. The con of this is that the income will not be paid out to you monthly, quarterly, annually, or otherwise.

Which way we decide will depend upon whether you actually need the income to maintain your accustomed manner of living. Remember, you will still have your social security, pension, and RMDs from your retirement plans.

The decision for your trust will be set in stone when the trust is created. In the question above, if the trust says you can have the income, take the dividends. If the trust says that the income must be accumulated, then you cannot take the income. If you take the income when the trust says you cannot, then the entire trust will no longer work. If you violate the terms of the trust, Medicaid will ignore the trust. It will no longer protect your assets. This is not limited to just the income being available, but all trust assets will be available to Medicaid.

If the trust says that you cannot get the income, then the dividends can still be paid out to your trust beneficiaries (children?). It will then be their money and they can do whatever they want with it. I hope you like your postcard from them from St. Thomas! 😊

I hope this helps! Please forward this information to your friends and relatives to share these informative answers to some very commonly asked questions.

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Stay safe!

Until next time…

peace, health and happiness,

Lawrence Eric Davidow