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Trusts

A trust is a legal entity that allows a person (the trustor) to transfer assets to another person (the trustee). Once the trustor establishes the trust, the trustee manages and controls the assets for the trustor or for another beneficiary.

You may choose to use a trust to provide flexible control of assets for the benefit of minor children. Another common use of a trust is to provide flexible control of assets for an older adult or a person with a disability, which could include yourself or your spouse. Two types of trusts can help pay for long-term care services:

  • Charitable Remainder Trusts
  • Medicaid Disability Trusts

Charitable Remainder Trusts

This trust allows you to use your own assets to pay for long-term care services while contributing to a charity of your choice and reducing your tax burden at the same time. You can set up the trust so that you receive payments from the trust to use for long-term care services while you are alive.

When you die, the balance of the funds in the trust goes to the charity that you selected. Since you are making a charitable donation, you can receive tax deductions for the fair market value of the assets that go to your chosen charity.

Key things to consider before setting up a charitable remainder trust:

  • The amount of money available to you to use for long-term care services is based on the amount of your donation. These payments are only likely to be large enough to help pay for long-term care expenses if you donate a substantial amount of money to the charity
  • The donation may affect your Medicaid eligibility

Medicaid Disability Trusts

These trusts are limited to persons with disabilities who are younger than age 65 and qualify for public benefits. Parents, grandparents, or legal guardians often set up these trusts to benefit persons with disabilities and a non-profit organization manages the assets. This is the only kind of trust that is exempt from rules regarding trusts and Medicaid eligibility.

Key things to consider before setting up a Medicaid Disability Trust:

  • If a beneficiary with a disability receives Medicaid benefits, the state can recover any amount remaining in the Medicaid Disability Trust when he or she dies
  • The tax implications for Medical Disability Trusts are complicated. Consult a tax professional before establishing a Medicaid Disability Trust