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An irrevocable trust is an excellent tool when preplanning for Medicaid benefits.  Anything that is put into the irrevocable trust is protected from a Medicaid spend-down if five years pass from the date of the transfer.

For example, Alice Smith, a 77-year-old widow, wants to protect her family cottage from potential long-term care nursing home bills and preserve it for the benefit of her four children and their immediate families.  To do so she would need to establish an irrevocable trust, fund it with the cottage property, and have five years pass from the date of the transfer.  Additionally, to ensure her children have sufficient funds to maintain the family cottage, Alice also simultaneously transferred $250,000 of cash assets into the trust.  Finally, in order to bullet-proof the plan in the event of an accident, Alice purchased a traditional long-term care insurance policy which will provide her with five years worth of long-term care benefits, including home health, assisted living, and nursing home care.  The long-term care insurance policy also offered a full return of premium rider in the event that she passed away without using any of the coverage.  After such an event, the annual premiums would be refunded to her revocable living trust.

With the above plan in place, Alice was confident that her wish to have the family cottage remain in the family for many years to come would be long lasting.  Notwithstanding the above, Alice understood that when the maintenance funds ran out that a financial problem may soon develop.  However, to avoid a point of impasse among her children, Alice designed the trust so that if a financial problem persisted for more than 90 days, the trustee was directed to sell the property, giving each child an equal share of the sale proceeds.