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What are the income, estate, and gift tax consequences of an asset protection trust designed for Medicaid planning purposes?

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What are the income, estate, and gift tax consequences of an asset protection trust designed for Medicaid planning purposes?

Question: What are the income, estate, and gift tax consequences of an asset protection trust designed for Medicaid planning purposes?

Answer: For Medicaid planning purposes you may set up a trust, an asset protection trust, so that in 5 years you can qualify for Medicaid and protect those assets from having to be used for your nursing home expenses. In order to set up this trust, that’s an irrevocable trust, and for Medicaid purposes you can qualify for Medicaid in 5 years after the date of transfer of the trust. It’s an irrevocable trust so upon your death the trust assets are not included in your estate for estate tax purposes. However, for income tax purposes, we can set up the trust to be a grantor trust so that the income from the trust is still taxed in your name during your life time even though it’s an irrevocable trust that’s excluded from your estate when you die.


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