Trusts are among the most popular of today’s estate planning tools and are favored for their protection, privacy, tax benefits, and flexibility. There are many different types of trusts.  Most of us spend a considerable amount of time and energy in our lives accumulating wealth for our own enjoyment and retirement and to provide for future generations.  Trusts can help you preserve and increase your estate while your alive and offer protection in the event of incapacity insuring that your assets remain available for your care.  Upon your death, trusts also avoid probate and insure that your assets pass to your beneficiaries instead of being siphoned off to government processes.

Revocable Trust
A "revocable" trust is one that may be changed or rescinded by the person who created it. This person is usually referred to as the “settlor”. Since the settlor retains control over the trust and its assets, Medicaid considers the assets of such trusts countable in determining Medicaid eligibility. Thus, revocable trusts are of no use in Medicaid planning. However, they are useful in a variety of other estate planning circumstances. For example, a revocable trust can be used to manage assets for inexperienced persons who have recently inherited wealth or for minors. Revocable trusts are useful for those lacking time to manage their property such as busy professionals. Revocable trusts are useful for tax planning, avoiding probate, avoiding guardianship and conservatorship in the event of incapacity, maintaining liquidity, and keeping privacy. These advantages and the flexibility of the Revocable Living Trust has made it an increasingly popular estate planning tool.

Irrevocable (Income only Trusts)
An “irrevocable” trust is one that cannot be changed after it has been created. An income-only trust is an "irrevocable" trust that may be used to protect your assets in the event of incapacity. In most cases an Income Only Trust is drafted so that the income is payable to an individual for life but the principal cannot be touched. At the death of the individual the principal is paid to the heirs or beneficiaries. This way, the principal of the trust is protected and the income is available for living expenses. For Medicaid purposes, the principal in such trusts is not counted as a resource, provided the trustee cannot pay it to the individual for his or her benefit. However, if the individual moves to a nursing home, the trust income will have to go to the nursing home. Obviously there are drawbacks to this type of arrangement, primarily, you cannot gain access to the trust funds even if you need them for some other purpose. Also, funding an irrevocable trust can cause ineligibility for Medicaid for five years.

Testamentary Trusts
Testamentary trusts are trusts created by a person’s will. Testamentary trusts can provide an important way to provide for a spouse, minor child, or loved one that is disabled. Testamentary trusts work well when a person does not have a lot of liquid assets or sufficient assets to establish a revocable living trust but has other types of non-liquid assets such as life insurance, retirement benefits, and other benefits payable upon death. Many young couples with young children create testamentary trusts under their wills to provide for the education, support and maintenance of their minor children in the event of a parent’s death.