Can the Person Who Creates a Florida Irrevocable Trust Also Benefit From It?

Walt's Question: Protection Without Giving Up Everything

An irrevocable trust is one the person who creates it cannot simply revoke or amend on his own. That is exactly what lets it move assets out of his estate for creditor, Medicaid, or tax purposes. Once he understands that, the next question is almost always the one I hear from clients like Walt.

Walt is 76, lives in Vero Beach, and is a composite of the kind of client I meet often, not an actual client of the firm. He has a paid-off home, a modest investment account, and a healthy fear of what a future nursing home stay could do to both. He wants an irrevocable trust to protect his savings from long-term care costs down the road, but he does not want to hand over the interest income he lives on. He asked me plainly: can I have both, protection and income?

The honest answer is that Florida law draws a very specific line. Walt can often keep the income. What he cannot keep, without consequence, is unrestricted access to the principal or a guarantee that his own creditors can never reach what he retained.

The Line: Income Retained, Principal Locked

Most Florida irrevocable trusts built for Medicaid planning follow the same basic architecture, and it is worth understanding as a line rather than a single rule:

• Income retained. The grantor can be named to receive all income the trust assets generate, such as interest, dividends, or rental income from property the trust now owns. This is often called an income-only trust.
• Principal locked. The grantor generally cannot retain the right to demand trust principal back on his own. Once assets go in, the grantor cannot simply undo the transfer or reach into the trust for a lump sum whenever he wants.
• Occupancy carved out for homestead. When a Florida homestead is the asset going into the trust, it is common and legally recognized for the grantor to retain the right to use and occupy the home for life, even while the trust technically owns the property.

For Walt, this means his trust can be drafted so that he keeps receiving the interest his investments earn every year, exactly as he does now. What changes is that the principal itself, the actual account balances, moves out of his direct control and into the trust, managed by a trustee under terms he cannot unilaterally change.

What Keeps a Trust Protective for Medicaid

Florida's Medicaid rules generally do not count irrevocable trust principal as an asset available to the applicant, as long as the grantor has no right to demand it back and the trust was funded outside of Medicaid's five-year lookback period. Income the trust pays out to the grantor is different: it is typically counted as income for Medicaid eligibility purposes in the month it is received, even though the principal stays protected.

This is why income-only trusts are a common Florida planning tool. They let someone like Walt keep living on his interest income today while positioning his principal, years down the road, to be excluded from what Medicaid counts if he ever needs nursing home level care. If his combined countable income later exceeds Florida's monthly income limit for Medicaid eligibility, a separate tool called a qualified income trust (sometimes called a Miller trust) may be needed to bring him back under the cap. That is a distinct, narrower device from the asset protection trust itself, and whether Walt needs one depends on his income at the time he applies.

What Defeats Creditor Protection: The Self-Settled Trust Problem

Here is where Walt's two goals, Medicaid protection and lawsuit protection, start to pull apart. Florida does not have a domestic asset protection trust statute. Unlike some other states, a Floridian cannot create a trust, name himself a beneficiary, and expect that arrangement to shield those retained assets from his own creditors.

This is the core distinction Walt needs to hear clearly. Medicaid rules and creditor law ask different questions. Medicaid asks whether Walt has given up control of the principal, and an irrevocable trust can answer that question favorably. A civil judgment creditor asks whether Walt retained a beneficial interest for himself, and if he did, in most cases that interest remains exposed. The income Walt keeps for daily living is precisely the kind of retained interest that a future creditor, such as one from a lawsuit unrelated to long-term care, could potentially reach.

Drafting Walt's Retained Interests With Care

None of this means an income-only trust is a bad idea for Walt. It means the trust has to be drafted with a clear-eyed understanding of what it does and does not protect. A few things I walk through with clients in Walt's position:

• Purpose matters. An income-only irrevocable trust built primarily for Medicaid planning is not the same tool as one built to shield assets from a lawsuit. Trying to make one trust do both jobs usually weakens it for both purposes.
• The five-year lookback. Funding an irrevocable trust does not create Medicaid protection immediately. Florida's Medicaid program looks back five years at transfers, so timing matters as much as structure.
• Occupancy rights for the homestead. If Walt's Vero Beach house goes into the trust, his continued right to live there can typically be preserved by name in the trust document, along with careful attention to how homestead tax exemptions and creditor protections carry forward.
• The trust is not necessarily frozen forever. Even an irrevocable trust can sometimes be changed through a nonjudicial settlement agreement among the beneficiaries, judicial modification, decanting into a new trust under Florida law, a trust protector's authority, or the consent of the settlor and all beneficiaries together. Walt is not signing something with zero flexibility, but changes generally cannot happen unilaterally, which is the whole point of the structure.

Walt's plan, ultimately, comes down to sequencing his goals honestly. If his main worry is a future nursing home bill, an income-only irrevocable trust, funded well ahead of any anticipated need for care, can accomplish real Medicaid protection while he keeps his interest income. If his worry is a lawsuit, he needs to understand upfront that naming himself as an income beneficiary will not insulate that income from his own creditors.

This article is for general informational purposes only and does not constitute legal advice, nor does reading it create an attorney-client relationship. Florida estate, elder, probate, and real estate law are fact-specific and change over time. Consult a licensed Florida attorney about your individual circumstances. Arthur Simpson, Esq. is licensed to practice law in the State of Florida. Attorney advertising.