Charitable Trusts, Medicaid Trusts, and Trusts for Long-Term Care of a Relative

When planning your estate, trusts can be powerful tools for protecting assets, meeting personal goals, and caring for loved ones.
Three specialized types of trusts—charitable trusts, Medicaid trusts, and long-term care trusts—can each play an important role depending on your needs.

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1. Charitable Trusts

A charitable trust is created to benefit one or more charitable organizations while providing potential tax benefits for you or your estate.

Key Features

• Primary Purpose: Support a charitable cause while potentially retaining income or tax advantages.

• Common Types:

  • Charitable Remainder Trust (CRT): You or other named beneficiaries receive income from the trust for life or a set term; at the end, the remaining assets go to the charity.

  • Charitable Lead Trust (CLT): The charity receives income for a set term; the remaining assets pass to your beneficiaries, often with reduced gift or estate taxes.

• Tax Benefits: May provide an income tax deduction, reduce estate taxes, and help avoid capital gains on appreciated assets transferred to the trust.

• Flexibility: Can support a single charity or multiple organizations.

Example: You fund a CRT with appreciated stock. You receive lifetime income, avoid immediate capital gains tax on the sale, and ensure your favorite charity receives the remainder after your death.

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2. Medicaid Trusts

A Medicaid trust—often called an irrevocable Medicaid asset protection trust—is designed to help preserve assets while qualifying for Medicaid to cover long-term care costs.

Key Features

• Purpose: Shield assets from being counted as available resources for Medicaid eligibility.

• Structure: Assets placed in the trust are no longer owned by you; the trust is managed by a trustee (often a trusted family member).

• Irrevocable: Once created, you generally cannot change or revoke the trust.

• Look-Back Period: Medicaid reviews transfers made within a certain number of years before applying (currently 5 years in most states).

• Income Rules: You can sometimes receive income from the trust, but you cannot have access to the principal.

Example: You transfer your home and investments into a Medicaid trust well before you need care. When applying for Medicaid after the 5-year look-back period, these assets may be protected from being spent down for nursing home costs.

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3. Special Needs Trusts

A Special Needs trust for a relative ensures that a loved one—such as an elderly parent or a family member with disabilities—has financial support for their care over many years.

Key Features

• Purpose: Provide ongoing funds for living expenses, medical care, and support services. Allows a disabled beneficiary to receive financial support without losing eligibility for needs-based government benefits like Medicaid or SSI.

• Trustee Role: A trustee manages the funds and pays for the beneficiary’s needs according to the trust terms.

• Flexibility: Can be tailored to cover specific expenses such as housing, home health aides, or therapy.

Example: You create a special needs trust for your adult son with a disability, ensuring he receives supplemental care and quality-of-life improvements while maintaining his eligibility for government benefits.

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Why These Trusts Matter in Estate Planning

Each of these trusts serves a different—but sometimes overlapping—purpose:

• Charitable trusts allow you to leave a lasting legacy while reducing taxes.

• Medicaid trusts protect assets from being depleted by nursing home costs.

• Special Needs trusts provide peace of mind that a loved one will have financial support and care security.

The right trust for you will depend on your goals, the value and type of assets you own, your family circumstances, and your state’s laws.

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Next Steps

Because these trusts involve complex rules—especially when government benefits are involved—it’s essential to work with an experienced estate planning attorney.
We can:

• Assess your eligibility and timing for Medicaid planning

• Structure charitable giving for maximum tax advantage

• Create long-term care provisions tailored to your family’s needs

• Ensure compliance with all applicable state and federal regulations

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Bottom Line

Charitable trusts, Medicaid trusts, and Special Needs trusts each offer unique ways to protect assets and fulfill personal or family goals. By planning ahead, you can support your causes, preserve your estate, and ensure your loved ones are cared for—without unnecessary financial hardship.