By Lei Jiang, Esq., Lei Jiang LLC.
An irrevocable trust is first a tool for protection and timing: shielding assets from future creditors, starting the clock toward Medicaid eligibility, and controlling how heirs receive property. It works when set up early and worded carefully.
First, asset protection. Once you place property in a properly worded irrevocable trust, it is generally no longer yours, so future creditors have a much harder time reaching it. Ohio law supports this through the Ohio Legacy Trust Act (R.C. Chapter 5816), for qualified dispositions made on or after March 27, 2013. Two limits: protection covers only what the document says and property actually placed in it, and it cannot dodge a creditor you already owe.
Second, Medicaid timing. Transferring assets into an irrevocable trust can start the clock toward Medicaid eligibility, which matters because gifts made within 60 months before applying trigger a penalty period of ineligibility. The trust helps only if it is set up years before care is needed. It must also be real: keep the right to use the assets, and Medicaid still counts them.
Third, controlled distributions. The trust lets you set the terms: payouts in stages rather than all at once, and protection so that a child’s inheritance is harder for that child’s creditors or a divorcing spouse to reach. For parents who want to provide without handing over a lump sum, this control is often the main reason.
Two limits to keep in mind. An irrevocable trust generally does not reduce capital gains tax: beneficiaries who later sell trust property take your original cost basis, with no step-up (I.R.C. § 1015(a); Rev. Rul. 2023-2) — unless the trust is drafted so the assets are included in your estate, in which case they receive a step-up at your death (I.R.C. § 1014). And it is rarely needed for estate tax anymore: the $15,000,000 per-person lifetime exemption, permanent under the July 2025 law, means most families owe no estate tax with or without a trust.
The practical takeaway: use an irrevocable trust for protection, Medicaid timing, or controlled distributions — planned years ahead and worded carefully. Just don’t buy it for capital-gains savings or estate tax most families will never owe.
Questions? Contact us at info@leijianglaw.com or (440) 835-2271, or book a free 15-minute call: https://calendly.com/leijianglaw-info/15-minute-consultation
This article is general information, not legal advice for your situation.