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Is There a Way to Prevent Trust Income from Going to a Nursing Home?

Posted: in Special Needs Trust News

Q: I wanted to set up a trust for Medicaid planning purposes, so that I can prevent the rental income generated from my home from going to a nursing home to pay for my care. But I read that the income from an irrevocable trust will go to the nursing home to compensate for my care. Is there a way to prevent the income from going to the nursing home?

A: Usually the purpose of an income-only trust in Medicaid planning is to protect the property in the trust either from having to be spent down to qualify for Medicaid in the first place or from the state’s estate recovery claim after the death of the Medicaid beneficiary. The trust can also be drafted so that the income is not distributed at all or distributed to people other than the grantor, such as the grantor’s children. While that would prevent the income from having to be paid to the nursing home, it would also mean that the grantor would not receive the income before moving into a nursing home. So, it is a tradeoff. Do you want to forego the rental income while you’re healthy in order to protect it in case you need Medicaid coverage in the future, or do you want to receive it while you’re healthy with the chance of having to contribute it to your cost of care should you require Medicaid coverage in the future? There are also tax considerations because trusts generally pay higher tax rates than individuals. For more information about using a trust in Medicaid planning, click here.