Irrevocable Income-Only Trust (Medicaid Trust)


The term irrevocable income-only trust refers to an estate planning tool that allows the donor to protect their assets if they eventually require the use of a nursing home.  When an irrevocable income-only trust is created, the income is available to the nursing home to offset costs.


Also referred to as a Medicaid Trust, an irrevocable income-only trust, or IIOT, is an estate planning tool used to protect the assets of the donor from the Medicaid system.  As the name implies, an IIOT cannot be changed by the donor once it has been created.  This type of trust only provides income to its beneficiaries, which is typically the donor, or grantor.  The corpus, or trust's assets, are not available to the grantor.  Even with these restrictions, when a transfer is made to an irrevocable trust, and the corpus is not available to the grantor, the Medicaid five year (60 month) lookback period still applies.

The important features of an IIOT include a steady source of income to the grantor, which is subject to federal income taxes, payable by the grantor.  The trust's corpus is also not counted as a resource for Medicaid purposes, thereby allowing them to be passed onto the grantor's heirs.  If the grantor eventually moves into a nursing home, the income from the trust would go to the nursing home and lower Medicaid's contribution towards the cost to provide services.

Related Terms

credit shelter trust, marital trust, charitable remainder trust, bypass trust