What's the difference between revocable and irrevocable trust?

1 answer | Last updated: Sep 18, 2016
A fellow caregiver asked...

My paperwork says my mother's trust is irrevokable. Now I'm confused.If she has to apply for medicaid will this burden now go on me? Will I end up being responsible for her debt in the end?

Expert Answers

Barbara Steinberg is the CEO and founder of BLS Eldercare Financial Solutions, which specializes in helping families pay for long-term care for their loved ones. A registered financial gerontologist, she speaks regularly on the topic of paying for long-term care and is a financial expert for Caring.com.

When someone establishes an irrevocable trust, they give up ownership and control of assets that have been transferred to the trust. They cannot change the trust or terminate it. The opposite happens with a revocable trust. The "grantor" retains ownership and control. SInce your mother's trust is irrevocable, she made a gift of her assets to the trust. If she applies for Medicaid, they may count the assets in the trust as resources available to your mother. If so, these resources need to be spent down before she is eligible for Medicaid. Whether or not the assets are countable depends when the gift (or gifts) was made to the trust. If it is less than 5 years since the gift was made, Medicaid will require that the assets in the trust be used for your mother's care and living expenses. If it is more than 5 years since the gift was made, the assets in the trust are not subject to spend down. These assets are held in trust for the benefit of the beneficiaries.

You need to know who the trustee is (the person or persons responsible for administering the trust) and who the beneficiaries are. The trustee has a fiduciary duty to follow the rules of the trust.

If your mother has debt, the language of the trust will determine if the trust assets can be used to pay down her debt. In most cases, you are not responsible for paying your mother's debt. One of the reasons people set up an irrevocable trust is that it provides protection from creditors. This is not true for a revocable trust.