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What Is The Difference Between A Revocable and An Irrevocable Trust?


In a trust, the person who created the trust is called the grantor. It’s the grantor’s property in the trust. When we put things in an irrevocable trust for Medi-Cal purposes, we’re shifting most of that ownership and benefit over to one or more beneficiaries. The grantor no longer gets the direct benefit from the income and no longer pays the tax on the income. Most importantly, the grantor no longer controls those assets. For Medi-Cal purposes, because the assets are not owned or controlled by the grantor, those assets are not considered a countable resource available to the Medi-Cal applicant.

Why Is A Revocable Trust Useless When It Comes To Medi-Cal Planning?

A revocable trust doesn’t work for Medi-Cal planning because the grantor owns all of the assets in the trust and gets all the benefit from the trust. If you own an asset and you get all the benefit, then that asset is a countable resource that puts you over the allowable limits for Medi-Cal. Medi-Cal is a means tested program and it specifies that you can only have a certain amount of assets. All of the assets in your revocable trust are counted as available assets and can disqualify you.

What Are The Advantages Of An Irrevocable Trust When It Comes To Medi-Cal Planning?

An irrevocable trust has some big advantages when it comes to Medi-Cal planning. We can walk a fine line between owning and not owning property. One of the biggest advantages to owning property and passing it to your children when you pass away is something in the tax law called a stepped up basis. The stepped up basis lowers the tax that your children will owe to the IRS after you die. An irrevocable trust preserves that asset in your estate, so your kids can still claim the stepped up basis when you die, which will reduce their tax liability. It also pulls the assets out of your estate for Medi-Cal purposes, so that when Medi-Cal looks at your estate, the assets don’t exist. The fine line you are walking is one where you own an asset for IRS purposes but not for Medi-Cal purposes.

How Far In Advance Must An Irrevocable Trust be Created And Funded To Be Used For Medi-Cal?

Long term Medi-Cal planning in California can be done in crisis mode. You can go to the hospital today, go to a nursing home tomorrow, and qualify for Medi-Cal in three days. Under normal circumstances, we can move an estate within 90 days. The ideal situation, of course, is to set the plan up before you need it and move some of the assets to the irrevocable trust before it’s necessary. Then, when the crisis occurs, we finish things up and put everything in place. Until California adopts the federal law, like the other 49 states, you can plan in crisis mode.

For more information on Revocable Trust Vs. Irrevocable Trust, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (916) 674-2066 today.

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