If you’re receiving disability benefits, retired, or living off a fixed income from a pension or 401(k), you may have started thinking more seriously about your future — and your family’s. That’s where trusts come in. One type of trust you might hear about in estate planning conversations is the “simple trust.” But what exactly does that mean?
Understanding the Basics
A simple trust is a specific type of trust recognized under IRS rules. It’s not called “simple” because it’s easy to set up — it’s called that because of the way income and distributions are handled.
Here are the defining features:
- All income generated by the trust (such as interest or dividends) must be distributed to the beneficiaries in the year it is earned.
- The trust cannot make charitable contributions.
- The trust does not distribute principal (the original assets placed into the trust), only the income from those assets.
In short, a simple trust serves as a pass-through vehicle: it collects income and passes it on to the beneficiaries each year. The beneficiaries are then responsible for paying taxes on that income.
Why Might You Use a Simple Trust?
Simple trusts are often used when someone wants to leave income to loved ones each year, without giving them full access to the underlying assets. For example:
- A parent might leave income from a rental property to a child with disabilities, while protecting the property itself for long-term planning.
- A retiree may want to provide steady income to grandchildren but preserve the principal for future generations.
For families managing disability, fixed incomes, or concerns about future long-term care costs, a simple trust can be one part of a broader estate or Medicaid planning strategy.
Simple Trusts vs. Complex Trusts
As you might guess, the alternative to a simple trust is a complex trust. These can retain income, make charitable contributions, and distribute principal. They allow for more flexibility — but they also come with different tax rules and administrative responsibilities.
The right choice depends on your financial goals, your beneficiaries’ needs, and whether you’re trying to protect assets or qualify for programs like Medicaid.
How Does This Relate to Medicaid or Elder Law?
If you’re over 50 and concerned about long-term care, nursing home costs, or qualifying for Medicaid in the future, a simple trust might not provide the asset protection you need — because the income it generates must be paid out and counted in a Medicaid eligibility calculation.
However, more advanced trusts, like irrevocable Medicaid asset protection trusts, may offer stronger protection. The key is working with an elder law attorney who understands how these tools affect your benefits and future eligibility.
When Should You Talk to an Attorney?
For a free legal consultation, call (800) 562-9830
If you’ve recently won your disability claim or entered retirement, it may be time to start thinking about the future — not just for yourself, but for your loved ones. Whether you’re updating your will, setting up a power of attorney, or planning for nursing home care, having a solid estate plan in place brings peace of mind.
A simple trust may or may not be right for your situation — but it’s worth asking about as part of a larger conversation about protecting your health, your home, and your family.
Need help exploring your options? Our firm is expanding its services to include estate planning and elder law. Contact us to learn more.
Call us at 800-562-9830
Or contact us online: DisabilityDenials.com
