Revoking an Irrevocable Trust

by Jerrold Bartholomew

There are a variety of reasons why one may wish to rescind an irrevocable trust, even if only in part. For instance, it may be the case that an irrevocable trust was established in order to shield assets from the cost of long term care, but long term care is needed before the five year look back period has elapsed. The assets of the trust are therefore needed to pay for long term care. The ability to return assets directly from the trust to pay creditors will provide a simple solution for executing an alternative spend down plan or paying through the remaining look back period.

Michigan law allows assets in an irrevocable trust to be handled contrary to the instructions provided in the original trust by means of an agreement between the grantor or settlor and the beneficiaries of the trust. These agreements can control any portion of the trust corpus, including, for example, just enough to pay the nursing home for one month. By executing a new agreement monthly, the nursing home can be paid each month until the look back period has elapsed and the grantor can safely apply for Medicaid without disclosing the transfer to the trust.

It is crucial to determine when a nursing home patient will be better off to execute a more sophisticated plan rather than wait until the look back period has elapsed. It is also important to provide for the grantor’s incapacity at the inception of the estate plan in order to insure that one will not need to go to probate court to carry out the asset protection plan. In the end, these principals can help to ensure the creation of an estate plan that will protect assets in the event of disability while at the same time maximizing the financial independence and security of the grantor.

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