Often in Medicaid planning we will create irrevocable trusts with a "power of appointment." A power of appointment is a clause in your trust which enables you, or someone you designate, to do various things. One of the things we often do in an irrevocable trust is create a power of appointment to change the beneficiary of a trust. By doing this, an irrevocable trust beneficiary can be changed by the person holding the power.
In Medicaid planning, we can create an irrevocable trust and hold funds in it for a client. The power of appointment is limited (thus called a limited power of appointment) to make sure that a person cannot change the beneficiary to themselves, a spouse, or creditors (before or after death). If they could, the trust would be considered available to them, and would prevent them from qualifying for Medicaid.
Recently in Massachusetts,, a trust with a limited power of appointment was reviewed by a court. The power of appointment allowed the trustee essentially to change or add non-profit beneficiaries to the trust. Because the nursing home was a non-profit, the State argued that the trustee could appoint it to the nursing home for payment.
The court was not persuaded by the State and ruled that the power of appointment did not allow payment to the nursing home. In sum, the trust did not allow the ability to appoint property to a creditor, or for the creators own benefit, and thus the Trust successfully sheltered the grantor's property.