Karen G. Jackson, Esq.

The Irrevocable Income Only Trust

An Irrevocable Income Only Trust (“IIOT”) is a powerful MassHealth planning tool.

By MassHealth planning, I mean saving the assets from the nursing home bill. I call all trusts “piggy banks” because they hold money and other assets like a piggy bank holds coins. The Grantor is the person signing the IIOT. If the Grantor is married, both spouses are the Grantors. After the Grantor signs the trust, the Grantor deposits the Grantor’s assets into the IIOT by signing certain transfer of ownership documents. For example, the Grantor can sign deeds to convey parcels of real estate to the IIOT and deposit money into the IIOT bank account. The IIOT has its own tax id number. There is no limit to the TOTAL value of assets transferred to the IIOT.

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Each time an asset is conveyed to the IIOT the five-year penalty clock starts ticking. If the Grantor goes into a nursing home and applies for MassHealth benefits after the five-year “look-back” has passed, those assets are safe from the nursing home bill. On the other hand, if the Grantor applies for MassHealth benefits for nursing home care within five years from the date of transfer of an asset, the asset must be returned to the Grantor. This is called, “curing the gift.” Because of the five-year look-back, the signing of the IIOT and transfer of assets cannot be done if the Grantor is clearly on the verge of needing nursing home care.

I do not recommend an IIOT if a Grantor is probably going to need skilled nursing home care within the next five years.

The most important rules required by MassHealth: 1) The IIOT must be irrevocable; 2) The Grantor is not permitted to access principal under any circumstance; however, the Grantor can receive the income generated by the assets; 3) The Grantor should not be a Trustee. We choose a family member or friend the Grantor trusts to serve as Trustee.