Should I Set Up an Irrevocable Income Only Trust?

Board-certified elder law attorney Kellen Bryant explains when Florida residents should consider establishing an irrevocable income only trust—also known by other names like asset protection trusts or Medicaid spend-down protection trusts. While these trusts share similar concepts, the key question remains: are you a good candidate for this type of legal protection?

The decision to set up an irrevocable income only trust isn’t based on gender, marital status, or age alone. Instead, specific factors determine whether this estate planning tool makes sense for your situation.

Key Characteristics of Good Candidates

You Have a “Hold and Save” Mentality

The most important factor is your financial philosophy. If you’re the type of person who wants to set aside assets for a specific purpose—and you don’t have plans to spend that money on other things—you may be an ideal candidate.

This mentality includes thinking: “If long-term care happens to me and my family is asked to pay $8,000 per month, I’d rather not pay that amount since I’ll receive the same quality care either way.” If protecting your assets from potential long-term care costs appeals to you, an income only trust could be appropriate.

Long-Term Care Insurance Isn’t an Option

Another strong indicator is when traditional long-term care insurance doesn’t work for your situation. This might be because:

• You can’t qualify for long-term care insurance due to health issues
• The premiums are prohibitively expensive
• You’re under-insured for your potential care needs

An irrevocable income only trust provides a legal alternative to protect your assets from long-term care spend-down requirements.

You’re Past Your “Big Spending” Phase

Good candidates are typically in retirement and have moved beyond their major spending and traveling years. If you’ve settled into a routine where you’re:

• Spending time with family rather than on expensive activities
• Living comfortably within your budget
• Not anticipating major purchases or lifestyle changes
• Recognizing you might not need all your accumulated wealth

Then you may be ready to commit assets to long-term protection through a trust structure.

Practical Requirements for Setup

You Need at Least One Trustworthy Adult Child

Since this is an irrevocable trust, you’ll need someone you can rely on to help manage and protect your assets. Having at least one responsible adult child who can serve in this capacity is essential for the trust to function properly.

Asset Thresholds Matter

The financial thresholds that make this planning worthwhile include:

• Single individuals: Over $100,000 in assets
• Married couples: Over $200,000 in assets

These amounts make the legal costs and complexity of trust setup economically justified given the potential protection benefits.

Health Considerations

You should definitely investigate an irrevocable income only trust if you’ve recently been diagnosed with:

• Alzheimer’s disease
• Dementia
• Parkinson’s disease
• Multiple sclerosis (MS)
• Any other chronic illness that may lead to long-term care needs

Early planning after such diagnoses can be crucial, as the trust requires a waiting period before providing Medicaid protection benefits.

What This Trust Accomplishes

An irrevocable income only trust allows you to:

• Protect assets from Medicaid spend-down requirements
• Continue receiving income from trust assets
• Preserve wealth for your beneficiaries
• Maintain some level of indirect control through trustee selection

However, because the trust is irrevocable, you cannot easily change terms or reclaim assets once they’re transferred into the trust.

Important Considerations

Before establishing an irrevocable income only trust, remember that:

• There’s typically a five-year waiting period before Medicaid protection begins
• You give up direct ownership and control of assets in the trust
• The trust requires ongoing management and potential tax filings
• Legal and setup costs should be weighed against potential benefits

Next Steps

If you recognize yourself in these characteristics and believe an irrevocable income only trust might benefit your estate planning goals, consult with an experienced elder law attorney who can evaluate your specific situation and explain how this tool fits into your overall planning strategy.