15.9 Income-only Trust

• Library: A Lawyer's Guide to Estate Planning: Fundamentals for the Legal Practitioner (ABA) (2018 Ed.)

15.9 Income-Only Trust

This trust is of limited usage, as it is irrevocable and also limits the beneficiary to income only from the trust. Principal cannot be distributed to the beneficiary. Most clients will not be comfortable with these restrictions. Its usage is further limited due to the 60-month "look-back" period for transfers without consideration. The reader will recall that transfers without consideration within 60 months of applying for Medicaid creates a disqualification from those benefits. In those limited situations where these restrictions are not deemed to be a serious disadvantage, then the use of this trust may be appropriate. In the right situations (after the 60 months), only income is required to be spent for long-term care expenses, with the state paying the balance of those expenses, as the trust principal is not deemed to be a resource for purposes of Medicaid eligibility. Further, the trust principal is not subject to estate recovery following the death of the trust beneficiary.

TRUST AGREEMENT

We, Richard Henry Roe and Mary Jane Roe, currently of __________, acting as grantors hereby transfer to Richard Henry Roe and Mary Jane Roe, currently of __________, acting as co-trustees (referred to in the singular as trustee), the sum of Ten Dollars ($10.00). This amount and all investments, reinvestments, and additions that may sometimes be referred to in this instrument as the "trust property" or "trust assets" are to be held subject to the following provisions:

1. Name of Trust. This instrument and the initial trust hereby established may be named the "Richard and Mary Roe Income Only Trust."

2. Family Information. Our children are __________, and all references in this trust to "our children" are only to them.

3. Provisions during our Lifetime. During the lifetime of both of us and during the lifetime of the survivor of us, the trustee shall pay to us, or to the survivor of us, all of the net trust income in quarterly or more frequent installments. The principal of this trust shall not be available under any circumstances for payment to either of us or to any future spouse of either of us. Under no circumstances may our trustee at any time make any such distribution of principal to either of us or to any future spouse. The term "principal" as defined in this instrument shall mean any real estate, money, or other asset except for interest, dividends, rental income, or other ordinary income that does not qualify for capital gains treatment. Finally, the trustee shall make distributions of income only and shall not distribute principal, adjust between principal and income, convert principal to income, or convert principal or income to a new trust amount.

4. Payment of Debts and Funeral Expenses. No portion of the assets of this trust shall be used for the payment of our debts or funeral expenses, as the payment of those expenses is provided for in each of our Last Wills and Testament.

5. Allocations at Our Deaths. ...