Inter vivos trusts are simply trusts created while you are still alive, as opposed to a Testamentary Trust which is created in your will and only recognized upon the successful probate of your Will. There are many types of inter vivos trusts, all of which avoid probate court, some of which help you reduce and avoid estate tax, and yet others that can help you qualify for Medicaid. Trusts established and funded on or after August 10, 1993, are governed by Consolidated Omnibus Budget Reconciliation Act of 1993, as codified in 42 U.S.C. §§ 1396a(k) and 1396p.
Current law divides inter vivos trusts into two distinct categories: Revocable and Irrevocable. Revocable Trusts can be canceled and are controlled by the person who made the Trust. An Irrevocable Trust is an arrangement in which the Grantor departs with ownership and control of property. Unless the Irrevocable Trust qualifies as a Grantor Trust, pursuant to the “Grantor Trust Rules” of the Internal Revenue Code at 26 U.S. Code § 671 through § 677, the Trust stands as a separate taxable entity. Because the Grantor must permanently depart with the ownership and control of the property being transferred to an Irrevocable Trust, such a device often has limited appeal to clients.
However, a property drafted Irrevocable Trust is valid under Massachusetts law pursuant to Cohen v. Division of Medical Assistance, 423 Mass. 399 (1996), HCFA Transmittal 64, § 3259.6 D (a.k.a. the State Medicaid Manual), and federal Medicaid trust law. Therefore, Irrevocable Trusts remain an essential ingredient in the implementation of a Medicaid plan for a senior, or an individual with disabilities, who is trying to protecting his or her assets, while also seeking medical assistance under the Medicaid program.
An Irrevocable Trust is a commonly used and is a popular Medicaid planning devise among Elder & Disability Law Advocates clients. Because OBRA 1993 trust rules apply regardless of the purpose for which the trust is established, whether the Trustee has or exercises any discretion under the trust, and regardless of any restrictions on when or for what use distributions may be made, seek proper counsel to assure that your trust is drafted properly.