What is an Irrevocable Income Only Trust?

An irrevocable income-only trust is a powerful estate planning tool that can protect your assets from nursing home costs while allowing you to keep the income they generate. Board-certified elder law attorney Kellen Bryant explains how this trust works and why it’s one of the most effective strategies for long-term care planning.

Understanding Irrevocable Income-Only Trusts

While “irrevocable income-only trust” sounds like a complex technical term, the concept is straightforward. This trust allows you to protect assets from nursing home spend-down while retaining the income those assets produce.

The Big Benefit: Asset Protection from Nursing Home Costs

The primary advantage of setting up an irrevocable income-only trust is asset protection. After you:

• Create the written trust agreement
• Transfer assets into the trust name
• Wait five years (Medicaid look-back period)

Any assets in the trust are protected and cannot be subject to nursing home spend-down requirements.

Why Asset Protection Matters for Long-Term Care

Nursing home care can cost $8,000 per month or more, quickly depleting a lifetime of savings. An irrevocable income-only trust protects your money for:

• Your spouse’s financial security
• Your own future care needs
• Your family’s inheritance
• Emergency funds for unexpected expenses

What Assets Work Best in Irrevocable Income-Only Trusts?

This trust is ideal for assets you don’t plan to spend but want to preserve:

Perfect Assets for This Trust

• Stocks and investments: You don’t want to sell but want to preserve
• Real estate: Rental properties or land you want to keep in the family
• Life insurance: You never plan to use the cash value
• Annuities: Providing steady income streams
• Other income-producing assets: That generate regular returns

How Irrevocable Income-Only Trusts Work

The trust structure is designed around a key trade-off: you give up direct access to the principal (the asset itself) but retain the right to income those assets generate.

What You Give Up (Irrevocable Aspects)

• Direct access to the principal/cash value of assets
• Ability to sell or liquidate trust assets directly
• Complete control over trust investments

What You Keep (Income Rights)

• All income generated by trust assets
• Dividends from stocks
• Interest from bonds or savings
• Rental income from real estate
• Distribution rights as specified in the trust

The Five-Year Protection Rule

Under Medicaid rules, the irrevocable income-only trust provides asset protection after five years because:

• Medicaid has a five-year look-back period for asset transfers
• After five years, transferred assets are no longer countable for Medicaid eligibility
• The irrevocable nature of giving up principal satisfies Medicaid requirements
• You can still receive income without affecting the protection

Why Give Up Access to Principal?

The key question many people ask is: “Why would I give up direct access to my assets?” The answer lies in strategic planning:

You Weren’t Planning to Use These Assets Anyway

If you’re setting aside specific assets that you:

• Don’t plan to sell or spend
• Want to preserve for family
• Use primarily for income generation
• Consider long-term investments

It’s better to have them in a protected trust where they cannot be forcibly spent down for nursing home care.

Protection vs. Access Trade-off

The trade-off makes sense when you consider:

• You keep the income from assets
• Assets are protected from $8,000+ monthly nursing home costs
• Your family inheritance is preserved
• You avoid forced spend-down of valuable assets

Medicaid Planning Benefits

Irrevocable income-only trusts provide significant Medicaid planning advantages:

Asset Protection After Look-Back Period

• Trust assets don’t count toward Medicaid resource limits
• Principal is protected from nursing home costs
• Income may still be counted but assets are safe

Flexibility for Income

• You continue receiving income from trust assets
• Income can help pay for care or living expenses
• Better than losing both principal and income to nursing home costs

Who Should Consider an Irrevocable Income-Only Trust?

This trust is particularly beneficial for people who:

• Have substantial assets they want to protect
• Own income-producing investments or real estate
• Are concerned about long-term care costs
• Want to preserve assets for spouse or family
• Are healthy enough to wait through the five-year look-back period
• Don’t need immediate access to asset principal

Potential Drawbacks to Consider

Before establishing an irrevocable income-only trust, consider:

• You cannot access the principal if you need it
• The trust is irrevocable – difficult to change
• Five-year waiting period for full protection
• Income from trust assets may affect some benefits
• Tax implications of trust income

Setting Up an Irrevocable Income-Only Trust

Establishing this trust requires:

• Working with an experienced elder law attorney
• Proper trust document drafting
• Careful asset selection and transfer
• Understanding of Medicaid planning implications
• Long-term planning strategy

Is an Irrevocable Income-Only Trust Right for You?

This trust can be an excellent tool for asset protection, but it’s not right for everyone. Consider your:

• Current financial situation and assets
• Future care needs and health outlook
• Family circumstances and goals
• Willingness to give up direct access to principal
• Need for income vs. asset preservation

Get Professional Guidance on Asset Protection Trusts

Irrevocable income-only trusts are powerful tools for protecting assets from nursing home costs while preserving income. However, they require careful planning and professional guidance to implement correctly.

Contact the Berg Bryant Elder Law Group in Jacksonville, Florida today to learn more about irrevocable income-only trusts and whether this asset protection strategy is right for your long-term care planning needs.