Choosing the Trustee and the Income Rules for a Florida Medicaid Asset Protection Trust

Why Sam Cannot Be His Own Trustee

Sam is a composite client I use to illustrate this planning question, not an actual person I have represented, but his situation is common along the Treasure Coast. He is 70, lives in Vero Beach, has no immediate care need, and wants to fund an irrevocable trust now so that five years from now, if he ever needs nursing home level care, the assets inside the trust will not count against him for Medicaid eligibility.

An irrevocable trust is one that Sam cannot simply revoke or amend on his own once it is signed. That loss of control is exactly what allows the trust assets to sit outside his countable estate for Medicaid purposes, but it also means Sam has to give up something real: he cannot be the trustee.

The reason is straightforward. A trustee holds legal title to trust property and controls how it is invested and distributed. If Sam kept that control himself, Medicaid would treat the trust assets as available to him anyway, defeating the entire purpose of the trust. The same restriction applies to Sam's spouse if he has one. This is not a drafting choice a Florida attorney can work around; it flows from the federal Medicaid trust rules that make this kind of planning possible in the first place.

Florida's own trust law, Chapter 736 of the Florida Statutes, still governs how the trust is created and administered. Sam must have legal capacity when he signs, and because he is both the person who funded the trust and (as we will see below) a permitted income beneficiary, Florida law treats him as a self-settled beneficiary for creditor purposes. That matters for a separate reason: Florida does not have a domestic asset protection trust statute, so a self-settled trust generally does not shield the settlor's own assets from the settlor's own creditors, even though it can still work for Medicaid purposes once the five-year period runs.

Picking a Trustee: One Child, Both Children, or Someone Else Entirely

Sam has a son and a daughter, and both have said they want the job. This is a good problem to have, but it is still a problem, because naming co-trustees, naming one child with the other as successor, or naming a corporate or professional trustee will each play out differently over the life of the trust.

• Co-trustees. Naming both children together can feel fair and can build in a natural check on each other, but it also means every trust decision, from tax filings to distribution requests, needs both signatures or an agreed process for how disagreements get resolved. Families that get along well day to day do not always agree well under the stress of a parent's declining health.
• One child as trustee, the other as successor. This avoids the two-signature problem and often reflects who genuinely has the time, location, or temperament for the administrative work. The tradeoff is that the sibling not named may feel passed over, so I encourage clients to talk this through openly rather than let the trust document be the first place a child learns the answer.
• A professional or corporate trustee. Where children live out of state, do not get along, or simply do not want the fiduciary responsibility, a professional trustee or trust company can serve instead, either alone or alongside a child in an advisory role.

Whatever Sam decides, Florida law and good drafting both allow him to keep a real safeguard: the trust can give Sam the right to remove a trustee who is not performing well and appoint a successor, even though he cannot act as trustee himself. A trust protector, someone with narrow oversight powers short of full trusteeship, can add another layer of flexibility. And the document is not necessarily locked in stone forever; depending on how it is written, it may later be adjusted through a nonjudicial settlement agreement among the interested parties, through court modification, through decanting under section 736.04117 of the Florida Statutes, or with the consent of Sam and all the beneficiaries, though decanting and modification have real limits and are not a substitute for careful drafting up front.

What the Trust Can Pay Sam: Income Yes, Principal Generally No

The Medicaid rules that make this trust work also draw a firm line between income and principal, and Sam's document has to respect that line to keep working.

Sam can keep the right to receive income the trust assets generate: interest, dividends, rental income if the trust holds rental property, and similar returns. That income is his to use as he wishes. What Sam generally cannot receive is principal, meaning the underlying trust assets themselves, on demand. Locking principal away from the settlor is what keeps those assets out of Medicaid's countable column once the five-year look-back period has passed.

There is a real tradeoff buried in that income right. Any income Sam receives from the trust does count as income to him for Medicaid eligibility purposes once he applies. If his total monthly income from all sources, including trust income, Social Security, and pensions, exceeds Florida's income cap for long-term care Medicaid, he would need a separate tool, a qualified income trust, sometimes called a Miller trust, to bring his countable income back under the cap. That is a distinct trust with its own federal safe harbor and its own state administrative process, and it becomes relevant only if and when Sam actually applies for benefits, not at the time he funds the asset protection trust.

Principal Distributions to the Children, and What the Trustee Actually Does

Because principal generally cannot flow back to Sam, the trust names his son and daughter (or whichever children or family members Sam chooses) as the beneficiaries who can receive principal, at the trustee's discretion, during Sam's lifetime or after his death. In practice, this means the trustee can distribute trust principal to a child for that child's own needs, and nothing legally obligates that child to turn around and spend it on Sam's care, though many families expect that as an informal understanding.

Whoever Sam names as trustee takes on real fiduciary duties under Chapter 736: keeping trust assets separate from personal assets, investing prudently, accounting to the beneficiaries, and following the trust's distribution terms rather than personal preference. This is not a rubber-stamp role, particularly if Sam later needs to rely on the trust having been administered correctly when he applies for Medicaid.

Sam's Final Terms

After weighing his options, our composite client Sam settled on a structure that reflected his family's dynamics rather than a generic template. He named his daughter, who lives nearby and works in a field that makes her comfortable with paperwork and deadlines, as sole trustee, with his son named as successor trustee if she is ever unable or unwilling to serve. Sam retained the right to remove and replace the trustee, kept his right to all trust income and to live in the home rent free, and directed that principal, if ever distributed during his lifetime, go to his two children in equal shares at the trustee's discretion.

Neither child was made a co-trustee day to day, which Sam felt would avoid friction, but both were given full accounting rights so that Sam's son would always see what the trustee was doing. It is one workable design among several, not the only correct answer, and every Florida family working through this question should expect their own final terms to look a little different.

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.