The Listen to Lawrence Letter: How to Handle Rental Income with a Medicaid Trust

June 21, 2024
June 20, 2024 • Volume 5 Issue 254
Rental income? Read on:


I have a home with a legal accessory apartment.  If I put the house into a Medicaid Trust can I (or the trustee) pay the real estate taxes, homeowners’ insurance, as well as maintenance, repairs, and improvements from the rental income? Also, I assume the rental income would have to be deposited into a bank account in the name of the trust, is that correct?


This is a great question and it gets into a complex trust issue.

Whenever we create these Medicaid irrevocable trusts, we have a choice on how to handle the trust income. I usually (not always) say that the trust income must be retained in the trust and cannot be paid out to you. We do have the choice to pay the income out to you, but if you need Medicaid later, then Medicaid will get that income.  On the other hand, some clients feel more comfortable receiving the income even if it could be lost later.  However, I always say that you MUST receive the income from your principal residence, in this case, the accessory apartment. Instead of saying “income” the trust might say that you retain the use of the personal residence but in legal lingo this includes the right to the income. I do it this way so that you can keep your property tax exemptions, as the right to the income from the property is a necessary requirement.

Therefore, since your trust says you have the right to the income from your residence, this is what should happen: The trustee should sign the lease and receive the rent. The trustee should then deposit the rent into a trust checking account. The trustee should then write a check giving you the rental income and you should pay all the bills.

I hope this helps.