What is an income cap trust, and how does it work?

On Behalf of | Jun 9, 2023 | Estate Planning

Estate plans usually indicate people’s wishes regarding their assets after death. However, specific estate planning tools have other purposes. Certain types of trusts, such as income cap trusts, could help provide individuals with ways to maintain eligibility for long-term Medicaid services, addressing potential issues as they grow older and require unique life settings.

Eligibility for Medicaid usually depends on a person’s monthly income. If this amount exceeds the designated limit, they might lose eligibility. An income cap trust is a tool that allows individuals to retain Medicaid eligibility despite surpassing the income limit. By establishing this trust, the applicant could use the fund for Medicaid long-term care, including allowance for basic needs, boarding as needed, health insurance and other care-related expenses.

Income cap trusts could yield considerable benefits for individuals as they become older. However, this trust is irrevocable. Setting it up requires reliable legal advice to ensure all its terms could address significant aspects of the applicant’s circumstances.

Income cap trusts could have restrictions

Like any trust, income cap trusts have conditions that apply after establishment. The applicant must deposit their income into a bank account created for the trust. Then, the trustee would pay the agreed-upon amount based on Oregon Administrative Rules.

Additionally, these trusts could require the applicant to agree that all remaining funds in the trust after their death would go to the state. Still, terms could vary depending on the situation. In this instance, involving a lawyer could help guarantee the trust’s proper formation to avoid problems in the future.

Income cap trusts might be appropriate for some but not everybody. Still, it is viable for individuals who prefer to retain their Medicaid benefits into elderhood. If it is not a good fit, other trust types could be beneficial based on their needs and preferences.