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Virginia Beach Estate Planning Lawyer / Blog / Estate Planning / Irrevocable Trusts and Long-Term Care Planning

Irrevocable Trusts and Long-Term Care Planning


Irrevocable trusts are one of a number of different types of trusts that can be used for long-term care planning. The trust is created by a Grantor (you) to hold some of your assets during your lifetime. Irrevocable trusts can hold assets such as real property (your home), bank accounts, or other investment vehicles. The Law Office of Angela N Manz can help you decide which specific assets you want to place in the trust. In this article, our Virginia Beach long-term care planning attorneys will discuss how an irrevocable trust can be used for long-term care planning.

Receiving income from the trust 

Irrevocable trusts move assets out of your estate so that they cannot be taxed. Instead, the income you receive from the trust is taxed. You, as the Grantor, have the right to receive income generated by the trust while you are alive. The rationale behind this is easy to follow. The income that is generated by the trust’s assets will be taxed at your income tax level. Trusts are generally taxed at a much higher tax bracket than an individual. The amount of money necessary to be taxed at the highest tax bracket of 35% is much lower for a trust than for individuals. Trusts only need to generate $600 in income before they are subjected to an income tax. Our attorneys design irrevocable, Medicaid-qualifying trusts to use special provisions of the IRS Code to allow the income generated by the trust to be taxed at the individual Grantor’s tax rate. To accomplish this, all of the income generated by the trust must be distributed to the Grantor.

Another solid reason for having the Grantor receive the income from the trust is that it provides a means of securing additional income. If you do not need additional income, the language of the trust will allow the Trustees to modify the investments in such a manner that it generates a lower rate of return. While you could leave income generated by the trust in the trust, there would be no benefit to doing so if you needed long-term care in a nursing home. Additionally, failure to take the income disbursed by the trust could result in penalties imposed by the Department of Social Services if you pursue Medicaid benefits in the future.

Another benefit of having you (the Grantor) as the income beneficiary of the trust is that you both retain the right to any income generated by the trust and you have the right to use any real property that is owned by the trust for the duration of your life. While technically, the trust is the owner of the property, you are fully permitted to use a real estate asset held by the trust. This allows you to retain any tax exemptions you may have on the property.

Talk to a Virginia Beach Long-Term Care Planning Attorney Today 

The Law Office of Angela N. Manz represents the interests of those searching for better ways to prepare for the future. Our Virginia Beach estate planning attorneys can help you with any long-term care planning you or your loved one may need. Call our office today to schedule an appointment and learn more about how we can help.

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