A MIDGET trust is a Medicaid Intentionally Defective Grantor
Trust. Done "right", an irrevoccable trust will either pay taxes as
its own independently existing entity, or the income taxes will be
due and paid by the beneficiaries. A Grantor Trust is one which is
created to provide benefits to someone else (the beneficiary), but
the income from the trust is taxed to the person establishing the
trust (the grantor). For a long time, that was a bad thing, because
people put assets into a trust to benefit others often, and getting
stuck with the tax bill wasn't a good thing. More recently, estate
planning attorneys such as those at the American Academy of Estate
Planning Attorneys realized that an Intentionally Defective Grantor
Trust (i.e. a trust which is intentionally deemed a Grantor Trust
by the IRS) could serve estate planning goals. Such an IDGET (or
IDGT) lets the Grantor preserve the assets they put into trust for
someone by having the Grantor pay the taxes instead of their
beneficiary or the trust for their beneficiary. This also serves to
decrease the size of the Grantor's remaining estate which can be
subject to onerous Federal Estate Tax and other death taxes later.
Finally, the Medicaid portion of this term (In California, the 'M'
is for Medi-Cal) refers to the use of this trust vehicle to
encompass assets the Grantor places into the trust to protect them
from a claim by the state Medicaid authorities for reimbursement
for Medicaid (often Nursing Home/Long Term Care) benefits, or to
increase the Grantor's eligibility for such benefits. Any member of
the American Academy of Estate Planning Lawyers should be able to
assist you with such an issue. My practice is in Pittsburgh as The
Estate Planning Centers at The Coulter Law Offices LLC. Please
remember that this is a general discussion only, and is not
intended as legal advice upon which anyone should rely. Moreover,
I'm typing this reply off of the top of my head as a courtesy, not
as a researched answer to your situation. You should consult with a
lawyer or appropriate professional regarding you own specific facts
and circumstances.
