2025 Guide to Irrevocable Income-Only Trusts (IIOT): How They Work and Costs Explained

Julia Kagan is a seasoned financial and consumer journalist, formerly senior editor of personal finance at Investopedia.

What Is an Irrevocable Income-Only Trust (IIOT)?

An Irrevocable Income-Only Trust (IIOT) is a specialized living trust commonly utilized in Medicaid planning to safeguard assets from being liquidated to cover nursing home or long-term care expenses. This trust enables the grantor to preserve wealth for beneficiaries, who can be family members, close friends, or charitable organizations.

Once assets are placed into the IIOT, legal restrictions govern their use. However, the grantor retains the right to receive all income generated by the trust assets. Additionally, the grantor can live in, manage, sell any real estate held within the trust, and reinvest proceeds from sales into new properties.

Understanding the Structure and Function of an IIOT

The trust agreement meticulously outlines critical elements such as the trust’s name, property included, trustee and trust protector appointments, powers over trust assets, beneficiary rights to appoint successor protectors, associated fees, and the trust’s purpose. This detailed framework ensures clarity and makes the IIOT nearly impossible to revoke, provided the grantor was mentally competent when establishing the trust.

It is important to emphasize that an IIOT is irrevocable, meaning it cannot be altered or terminated without the beneficiary’s consent. This contrasts with revocable trusts, which allow the grantor to make changes as needed.

Key Takeaways

• IIOTs are primarily used for Medicaid planning to protect assets.
• They secure assets intended for beneficiaries by restricting their use.
• IIOTs are irrevocable and require beneficiary approval for any modifications.

Comparing IIOTs to Other Trust Types

Besides IIOTs, there are various trust types such as personal trusts, which individuals create for their own benefit to achieve multiple goals. Personal trusts act as independent legal entities with authority to manage, buy, or sell property on behalf of the trustor.

For instance, a trustor might establish an irrevocable personal trust to fund their children's education. This involves transferring assets into the trust, often with the assistance of estate lawyers, custodians, and investment advisors who help manage the assets in alignment with specific objectives like growth or income generation.

Other trust examples include charitable lead trusts, bare trusts, and naked trusts, each serving unique purposes in estate and financial planning.

Explore useful articles in Wealth as of 22-08-2019. The article titled " 2025 Guide to Irrevocable Income-Only Trusts (IIOT): How They Work and Costs Explained " offers in-depth analysis and practical advice in the Wealth field. Each article is carefully crafted by experts to provide maximum value to readers.

The " 2025 Guide to Irrevocable Income-Only Trusts (IIOT): How They Work and Costs Explained " article expands your knowledge in Wealth, keeps you informed about the latest developments, and helps you make well-informed decisions. Each article is based on unique content, ensuring originality and quality.