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By Nancy Burner, ESQ.

Many people who own real property, whether it is a family home or a vacation home, have a common estate planning goal: protect the house and transfer it to the next generation.

One way to transfer real property to your beneficiaries during your life is to execute a deed with a life estate. For the owner, this means that you will retain the right to live in the home until your death, but upon your demise, the property will be fully owned by your beneficiaries. Because you retained a lifetime interest in the property, you would still be able to claim any exemptions with respect to the property.

There are several benefits to executing a deed with a life estate. First, it is easy and relatively inexpensive. Because the property is a transfer, it will start the look-back period for Medicaid. For nursing home care, the transfer must be more than five years prior to your application for coverage. There is no look-back period for home care, so the property would be considered “unavailable” in the month after the transfer. Moreover, when you pass away, the beneficiaries will get a “step-up” in basis that will eliminate or lessen capital gains tax due if they did sell the property. 

However, the negative aspects to this kind of transfer typically outweigh its benefits. The first is loss of control. Once you have transferred the deed to your beneficiaries, they own it. If you wanted to sell the property or change who received it, you would have to get the permission of those to whom you initially transferred the property. If one of your beneficiaries dies before you, their estate will own a piece of your house. If their estate pays to their spouse, you could have in-laws owning your property when you would have preferred that share to go to the decedent’s children.

Lastly, if the property is sold during your lifetime, you may incur a capital gains tax. When a person sells their primary residence, they receive a $250,000.00 exemption, which means that a tax would only be imposed if the gain on the property was more than $250,000.00. However, when your ownership interest is a life estate, you do not get the full $250,000.00 and therefore may inadvertently incur a tax. For Medicaid purposes, if the house is sold, your interest in the property will be valued and what was once an exempt asset will convert to cash. If this cash amount plus what you already have exceeds the Medicaid asset limit, currently $14,850.00, you would be ineligible for Medicaid.

Another way to transfer real property at death is to create a last will and testament with specific provisions with respect to that property. For instance: “My Executor shall distribute my real property located at 1 Smith Street, Smithsville, New York, to my children, in equal shares.” This means that upon your death, your executor would probate your will in Surrogate’s Court and once they receive approval from the court, they could effectuate the transfer to your children as desired.

The benefit to this kind of planning is that you retain complete control over the property until your death. The downside is that it provides no asset protection and your beneficiaries would have to wait until the probate process is completed before they received the real property.

Moreover, any disinherited heirs would have the opportunity to object to your will. If you have children and are treating them equally, then this would not be a concern, but for those who are treating children unequally or for those who do not have children and are leaving property to a nonfamily member, a traditional will may not be the best option.

The last way to devise real property is through a trust. While there are many different types of trust, for the purposes of this article we can divide them into two categories: revocable vs. irrevocable trusts. A revocable trust allows the creator to maintain complete control over the property in the trust, whereas an irrevocable trust typically limits your access to the property and forces you to designate someone other than yourself (or your spouse) as the trustee. All trusts avoid the probate process. Similar to a will, the property would continue for your benefit during your life and would not transfer to the beneficiaries until after your death.

In addition to avoidance of probate, irrevocable Medicaid trusts protect the property in case you need Medicaid to cover the cost of long-term care in the future as transfers to irrevocable Medicaid trusts begin the five-year look-back period even though you maintain control over the asset. This control is in the form of the ability to change your trustee and your beneficiaries any time. The house can be sold at any time and a successor property purchased without incurring any negative tax consequences.

The biggest negative to the trust is the cost to set it up. Typically, attorneys charge more to prepare a trust than a simple will or deed transfer.

Nancy Burner, Esq. practices
elder law and estate planning from her East Setauket office.

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By Linda Toga, Esq.

The Facts: My uncle died without a will. He was never married and has no children. He owned a house and a car and likely died with significant debts. No one in the family wants to handle his estate because they are concerned that they will be personally responsible for paying that debt.

The Questions: Are their concerns valid? What happens if no one steps up to be named administrator?

The Answer: When someone dies without a will, the intestacy statute controls what happens to his or her estate. Generally, someone related to the decedent will petition the Surrogate’s Court in the county where the decedent lived to be named administrator of the estate.

In addition to filing a petition about the decedent, his family and his assets, the petitioner must provide the court with an original death certificate, signed waivers from other family members who are in line to inherit from the estate and, in many cases, a family tree. That family tree is needed to establish that all the relatives who are entitled to notice of the administration proceeding are, in fact, given notice.

Once appointed, the administrator is responsible for marshalling and liquidating the decedent’s assets and depositing the funds into an estate. In your uncle’s case, the administrator would close any bank or brokerage accounts your uncle may have had and arrange for the sale of his house and car. All proceeds would be deposited into an estate account.

The administrator then uses the funds in the account to pay the expenses of administering the estate and the legitimate debts of the decedent. Once those are paid, the administrator is responsible for distributing the balance in the estate account to the appropriate family members based upon the intestacy statute.

Since your uncle did not have a spouse or children, the assets remaining in the estate after the payment of expenses and debts would pass to his parents if they are alive. If they predeceased your uncle, the assets would be distributed to his siblings in equal shares. The administrator has no discretion with respect to distributions. She must follow the provisions of the statute.

The administrator is not personally obligated to pay any of the decedent’s creditors and is reimbursed from estate funds for any expenses she may incur in administering the estate. In addition, the administrator is entitled by law to receive commissions based upon the value of the estate. Since commissions are considered an administrative expense, they are paid before the decedent’s creditors and before distributions are made to family members.

If no one steps up to be named administrator, the county public administrator may be appointed to handle the estate. The Surrogate’s Court would appoint the public administrator who would then handle all aspects of estate administration set forth above. If no one in your family is willing to serve as administrator, any of your uncle’s creditors can petition the Surrogate’s Court to name the public administrator to handle your uncle’s estate. That way the creditors can be sure that they will be paid assuming there are adequate assets in the estate. 

Linda M. Toga, Esq. provides legal services in the areas of estate administration and planning, real estate and litigation from her East Setauket office.

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By Nancy Burner, Esq.

The Question:

My mom has been a recipient of Community Medicaid. As her condition is deteriorating, it is apparent that she will require long-term care in a nursing facility. I have heard that her Community Medicaid will pay for the nursing facility. Is that correct?

The Answer:

No, Community Medicaid will not pay for long-term care in a nursing home. Community Medicaid is the program that covers care at home; such has a personal care aide. Chronic Medicaid is the program that covers nursing home care. The requirements and application process for Community Medicaid and Chronic Medicaid are very different. An individual is unable to receive both Community and Chronic Medicaid simultaneously, so it is important to know the differences and make sure you have the correct Medicaid in effect.    

For 2016, an individual applying for Community Medicaid can have no more than $14,850, not including their home, in resources and no more than $845 per month in income. Qualified funds such as IRAs or 401(K)s are exempt, but the applicant is required to take periodic distributions that are counted as income each month.

While these limitations may seem daunting, the good news about Community Medicaid is that there is no look-back period and the individual can opt to use a pooled trust to preserve any excess income above the $845. That means someone looking to get care at home can transfer assets and set up a pooled trust in one month and be eligible for Community Medicaid in the following month.

This is much different than Chronic Medicaid. For 2016, an individual applying for Chronic Medicaid can have no more than $14,850 in resources, including a home, and no more than $50 per month in income. There is no pooled trust option to protect the excess income.

Like Community Medicaid, qualified funds such as IRAs or 401(K)s are exempt, but the applicant is required to take periodic distributions that are counted as income each month.

Chronic Medicaid has a five-year look-back. The look-back refers to the period of time that the Department of Social Services will review your assets and any transfers that you have made. To the extent that the applicant has made transfers or has too many assets in their name to qualify, they will be ineligible for Medicaid.

However, there are some exempt transfers that the applicant can make that will not render them ineligible. If transfers were done in order to qualify the individual for Community Medicaid, those same transfers may pose an issue for a Chronic Medicaid application. 

Due to the differences in Community and Chronic Medicaid requirements and regulations, it is imperative to consult with an expert.

Nancy Burner, Esq. practices elder law and estate planning from her East Setauket office.

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By Linda M. Toga

The Facts:
I am an only child, widowed and have no children. I have very specific wishes relating to my funeral and burial.

The Question:
Since I have no parents, spouse, children or siblings, who will be in charge of my remains and responsible for arranging my funeral and burial?

How It Works:
Generally, a person’s parents, spouse or children have the authority to make funeral and burial arrangements for that person. However, since these people do not exist in your case, you should consider naming an agent to make these arrangements for you. 

In New York State there is a statute that allows you to do just that. You may appoint anyone you wish, including a friend, relative or clergy person, to make all the necessary funeral and burial arrangements.

Of course, before naming anyone as your agent for this purpose, you should discuss your wishes with that person to be sure he/she is willing to take on the responsibility of making sure your funeral and burial plans are implemented.

In order to legally appoint someone to control your remains and handle your funeral and burial, you must name your agent in a document titled “Appointment of Agent to Control Disposition of Remains.” I generally refer to the documents as a Disposition of Remains Statement or DRS. 

In the DRS, you not only identify the person who will actually be carrying out your wishes with respect to your funeral and burial, but you can also set forth exactly what those arrangements should be.

For example, you can identify the funeral home you want used, whether you want to be buried or cremated, what music should be played at your wake or if you want a religious grave-side service.

You can be as detailed as you wish, going so far as to set forth what food should be served at any post-burial luncheon  that may be arranged and what clothing and jewelry you want to have on when you are buried.

As an alternative to stating your wishes in the DRS and hoping that your agent is able to make the necessary arrangements, you can preplan your entire funeral and burial with the funeral home of your choice in advance.

If you preplan your funeral, you will have the option of prepaying for the arrangements as well.

That way your agent’s responsibilities will be limited to making arrangements for your remains to be brought to the funeral home and notifying the people who would likely be attending the funeral.

Whatever route you decide to take, you should seek the assistance of an elder law attorney to be sure the DRS is properly prepared and executed.

Linda M. Toga provides legal service in the areas of estate planning, estate administration, Medicaid planning, wills and trusts, marital agreements, small business services, real estate and litigation from her East Setauket office.

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By Nancy Burner, Esq.

The typical Medicaid trust is a grantor trust for income and estate tax purposes. The grantor trust rules came about after high earners tried to lower their income tax consequence by scattering their income to various trusts over which they maintained control. By spreading their income out, the earners were subject to the lower tax brackets since each trust was considered a separate entity, rather than all the income being taxed to one individual.

Eventually, the IRS caught on to this technique and the grantor trust rules were born. The grantor rules state that if the grantor, that is, the creator of the trust, maintains certain “strings” of control over the trust, such as the right to principal or the right to change the beneficiaries, then all the income from said trusts must be reported on the grantor’s individual tax return.

In addition, the IRS imposed compressed tax rates for trusts. For instance, in 2016 once the income of a trust exceeds $12,500.00, the trust is taxed at the highest tax bracket of 39.6 percent. An individual would have to earn $415,050 to reach that rate. Similarly, a trust can be a grantor trust for estate tax purposes. This would mean that despite the fact that the grantor transferred assets to an irrevocable trust during their life, if they retain certain rights under the terms of the trust, the assets are still includible in their estate for estate tax purposes.

While this combination of new rules from the IRS does not help to lower income or estate tax, it provided for the perfect vehicle for Medicaid planning. Nursing Home Medicaid imposes a penalty for any transfers made within the 5 years prior to the date of the application. If assets are transferred to a trust, the trust must be irrevocable and must provide that the grantor has no right to principal in order for Medicaid to consider the asset unavailable for eligibility purposes. Individuals interested in Medicaid planning were anxious to protect assets but did not want to give up complete control of their assets, nor did they want to incur any negative tax treatment. The grantor trust rules solved those concerns.

While Medicaid does prevent the trust from returning principal to the grantor, the grantor can still receive any income earned in the trust, can retain the right to reside in any real property in the trust and can change the trustee or beneficiaries at any time.

Moreover, because the grantor retains the right to reside in any real property in the trust, the grantor is still entitled to any real property tax exemptions and still receive their $250,000 capital gains exemption if the property is sold.

As mentioned above, if properly drafted, a grantor trust will provide that any income generated within the trust will be reported on the creator’s individual tax return, thus eliminating the possibility of a compressed tax rate.

Additionally, since the assets are still includible in the grantor’s estate when they pass away, there will be a 100 percent step-up in cost basis equal to the fair market value as of the date of their death. This means that if a grantor purchased her home for $30,000.00 in 1980, the property will be re-assessed upon her death to the fair market value. Therefore, when the beneficiaries sell the property there will be no capital gains tax incurred.

Not all trusts are created equal. If you are considering a Medicaid trust, consult with an elder law attorney in your area to learn more.

Nancy Burner, Esq. practices elder law and estate planning from her East Setauket office.

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By Linda M. Toga, ESQ.

The Facts: After my mother died, my father transferred his assets into a trust to avoid probate. He frequently told me how pleased he was that everything would pass to me and my sister without having to go to the Surrogate’s Court. After my father died last month, I discovered that he had a bank account that was in his own name. Apparently he did not transfer the funds in the account into a trust account.

The Question: What must I do in order to close the account?

The Answer:  The situation you are facing is very common since it is not at all unusual for people to set up a trust but not transfer all of their assets into the trust. Luckily for you and your sister, closing the account should not be too burdensome.

The steps you must take to close your father’s account depend on the value of the account. If the account has a balance of greater than $30,000, and your father did not have a will, someone must apply to the Surrogate’s Court for letters of administration. Both you and your sister have priority over other family members when it comes to who can serve as administrator.

The petition for letters of administration must include information about the person who is actually applying for the letters in addition to information about your father, your family and the assets over which you are seeking control. You may have to give some people notice that a petition for letters is being filed and you may need to obtain waivers from other people. The Surrogate’s Court also requires an original death certificate and a check to cover the filing fee.

If your father’s account has a balance of greater than $30,000, and he died with a will, the person named as executor in the will should petition the Surrogate’s Court for letters testamentary. Like the petition for letters of administration, the petition for letters testamentary must include information about the petitioner, information about your father and his family and the assets that will pass under the will. The original will and an original death certificate must be included with the petition, in addition to a filing fee.

Depending on who was named in the will, other documents may be needed and you will likely need to give notice of the petition to certain people and obtain waivers from others. If the account is the only asset in your father’s name, the filing fee payable to the Surrogate’s Court for processing the petition, whether it’s for letters of administration or letters testamentary, will depend on the value of the account.

If the value of the account is less than $30,000, you can obtain the Surrogate Court’s permission to close the account by filing with the court an Affidavit in Relation to Settlement of Estate Under Article 13. The filing fee is only $1 and the affidavit is quite straightforward. In completing the affidavit, you will need to provide the name and address of the bank where the account is located, the account number and the balance in the account.

If satisfied with the affidavit, the Surrogate will issue you letters giving you authority to close the account. If you find other assets in your father’s name after filing the affidavit, you will have to file a new affidavit since the authority granted by the court in connection with the filing of an Affidavit in Relation to Settlement of Estate Under Article 13 is limited to the assets described in that affidavit.

To save time and ensure that you are handling the account properly, it is advisable to contact an attorney experienced in estate administration. That way you can be certain that the proper documents will be prepared and filed on behalf of your father’s estate.

Linda M. Toga provides legal service in the areas of estate planning, estate administration, Medicaid planning, wills and trusts, marital agreements, small business services, real estate and litigation from her East Setauket office.

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Maggie Hamm, of Leisure Village, speaks about how she almost fell victim to a scam, at a press conference held at the Rosa Caracappa Senior Center in Mount Sinai on March 11. Photo by Desirée Keegan

“Don’t trust anyone.”

That’s what Bernard Macias of AARP advised seniors to do at a press conference held at the Rosa Caracappa Senior Center in Mount Sinai regarding phone scams across Suffolk County.

“It’s happening more and more than you think,” he said. “Clearly, for AARP, we’re here to protect people 50 and over, but we’re finding that our member’s children and grandchildren and being faced with this. Don’t trust anyone, really, because they’re constantly changing those scams.”

Bernard Macias, Associate State Director of Outreach on Long Island for the American Association of Retired Persons, tells residents not to trust anyone when answering a call, as it may be related to scam, especially around tax season. Photo by Desirée Keegan
Bernard Macias, Associate State Director of Outreach on Long Island for the American Association of Retired Persons, tells residents not to trust anyone when answering a call, as it may be related to scam, especially around tax season. Photo by Desirée Keegan

Suffolk County Executive Steve Bellone (D) said that in 2015, the total cost of financial fraud against seniors across the country was $36.5 billion. Although anyone can be a victim of scam, con artists particularly prey on seniors, he said.

“That is an extraordinary sum that is being stolen from our citizens,” he said. “Tax day is April 15, it is fast approaching and it is a time that scam artists are working hard to get a hold of people’s hard-earned money.”

Bellone said that in one instance, a scamming entity posed as the Internal Revenue Service and said that if the person did not provide a certified check or transfer funds to the agency, they would be imprisoned. The caller went so far as the tell the victim that they would remain on the line until the woman reached her bank and successfully wired the funds to an account that was provided, he said.

Luckily, the bank manager recognized the customer and noticed that she looked and sounded worried, Bellone said. The victim told the manager about the person she was on the phone with, and the manager was able to stop the scam from happening.

This week is National Consumer Protection Week and as a result, Bellone said the county is urging citizens to remain informed. He said so far, Suffolk County Consumer Affairs has recovered over $534,000 through its investigations on behalf of county residents.

“These scammers use all kinds of threats and demands to gain access to your accounts, and threaten your identity,” he said.

The county executive urged those who felt vulnerable to a scam to file a complaint with the consumer affairs department by calling (631) 853-4600.

To avoid an IRS scam, Brookhaven Supervisor Ed Romaine (R) said that AARP offers free tax filings for senior citizens. Some locations in the town include the senior center and town hall, among local libraries, he said.

Maggie Hamm shares how she almost fell victim to a scam. Photo by Desirée Keegan
Maggie Hamm shares how she almost fell victim to a scam. Photo by Desirée Keegan

Maggie Hamm, of Leisure Village, received two suspicious phone calls within three weeks. She said that during the one call she did answer, TD Bank was mentioned. Hamm used to have an account with the organization, which she said piqued her interest in listening to what the caller had to say. The person on the other end of the phone mentioned having or owing money, which she said sounded off.

“I asked, ‘is this a scam? And boom, he hung up the phone,” she said. “You just know — you get a vibe and a red flag goes off. I think as we get older you don’t want to make any waves, and I understand seniors become afraid and concerned, because they don’t want any trouble, but you can’t be afraid to step forward and say no.”

Suffolk County Legislator Sarah Anker (D-Mount Sinai) said she too received two messages on her phone that were related to scams.

“Help us help you,” is what the caller said at the end of one of the messages.

Anker said she tried to call back the number, but the call didn’t go through.

“People will actually fall for it,” Anker said. “They’re trying to catch the person on the phone right away, because once they get you in person, the level of scamming has increased.”

She asked residents to call the Suffolk County Police Department to report the scam as a crime, at (631) 852-COPS. Two years ago, the legislator also created a scam alert website, SCPDscamalert.org, which has more information on how to protect yourself against incidents involving scam.

Councilwoman Jane Bonner (C-Rocky Point) said that calling 4(631) 51-TOWN would also provide residents with more information.

“If it doesn’t seem right, it probably isn’t right,” she said. “You should always follow your instincts and your gut, and the government will never call you when you’ve done something wrong. They’re required to mail you as proof of documentation. Don’t fall prey to the phone call.”

Suffolk County Executive Steve Bellone urged residents to remain cautious when answering the phone, as a result of the increase in phone scams across the county. Photo by Desirée Keegan
Suffolk County Executive Steve Bellone urges residents to remain cautious when answering the phone, as a result of the increase in phone scams across the county. Photo by Desirée Keegan

Macias, who said AARP serves over 500,000 members on Long Island, said, in light of tax day, to mail in tax returns as early in the season as possible, not to give out personal information and to shred all personal documents.
Three important facts Macias said to understand is that the IRS will never call and demand payment over the phone, the IRS does not ask for credit or debit card information over the phone and the IRS does not threaten to bring local law enforcement to your home.

“Scam artists continue to devise new things and new schemes that are becoming more and more difficult to detect, which is why AARP developed the AARP Fraud Watch Network as a way to protect people,” he said.

By logging onto aarp.org/money and clicking on the Consumer Protection tab, residents can access a link to the company’s Fraud Watch Network. There, anyone can sign up to get AARP’s Watchdog Alerts on scammers’ latest tricks and find out what to do if you’ve been victimized.

“You’re not only helping yourself, but helping other who may fall victim to the same scam,” Bellone said. “Don’t feel embarrassed to come forward. Feel empowered to help educate and protect others.”

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By Nancy Burner, Esq.

Each January, the governor of the State of New York puts out a proposed budget from which the legislative and executive branches will base their negotiations to determine a final budget.  The budget is set to be passed by March 31; the date that marks the end of the fiscal year for the state. Just as in years before, our state legislature is in the process of reviewing the proposed budget.

There are several proposals in the budget that, if passed, will have an impact on the Medicaid program as we know it in New York State. Specifically, two in particular will affect married couples in need of care. 

For the 27th year there is a proposal that “spousal refusal” be abolished in the home care Medicaid setting. Spousal refusal is the mechanism by which the spouse of a Medicaid applicant can maintain a Community Spouse Resource Allowance (CSRA) of assets above the Medicaid level as long as the spouse receiving Medicaid maintains assets below the permissible amount of $14,850.00. 

The removal of this provision from our program would not only apply to spouses but to other “legally responsible relatives” including the parents of children in need of the Medicaid program to help pay for the cost of care. The fear of losing the spousal refusal option is that this will force individuals to put a child or spouse in a nursing home in order to maintain enough assets to support themselves or force divorce or separation. 

Compounding the issue of the loss of spousal refusal in the home care setting is the proposal to reduce the CSRA to $23,844.00. Currently, the law in New York states that a spouse can have up to $74,820.00 while the federal maximum is $119,220.00.  Many fear that reducing the CSRA would make it difficult for couples to have a large enough emergency fund, putting them one leaky roof or flooded basement away from impoverishment. 

Oftentimes, the spouse requiring Medicaid may live a long life beyond that of their sick spouse. The loss of these two important parts of our Medicaid program will force the healthy spouse to spend all of their money on the sick spouse and be left without assets to take care of his or her own needs.

Nancy Burner, Esq. practices elder law and estate planning from her East Setauket office.

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By Linda M. Toga, ESQ.

The Facts:   My mother deeded her house to me and my brother Joe and retained a life estate.

The Question:  Can Joe and I sell the house to pay for our mother’s care?

The Answer:  You and your brother can sell the house but, only with your mother’s consent. Based upon her life estate, your mother has an ownership interest in the house for as long as she lives. As such, her consent is not only needed to sell the property but also to obtain a mortgage on the house or to otherwise encumber the property.

That being said, depending on your mother’s age and when she deeded the house to you and Joe, there may be better ways to finance your mother’s care than selling the house.

Before the Medicaid look-back period was changed to five years for all nonexempt transfers, life estates were a very popular part of Medicaid planning. However, since the look-back period is now the same whether you transfer a residence and retain a life estate or put the residence in an irrevocable trust, life estates create unique problems and, therefore, are less popular. 

That does not mean that there are no benefits to creating a life estate. For example, by creating a life estate, the house will not be subject to probate when your mother dies, the value of the house will not be included in your mother’s gross taxable estate and your mother continues to enjoy any real estate tax exemptions that were applicable to the property before she deeded the house to you and Joe.

The downside of a life estate from a Medicaid planning perspective is the fact that, if the house is sold during your mother’s lifetime, your mother is entitled to a portion of the proceeds from the sale. This is true even if the life estate was created more than five years before the sale.

The percentage of the proceeds going to your mother upon the sale of the house is governed by life expectancy tables, depends on how old your mother is at the time of the sale and is surprisingly large.

For example, a life tenant who is 80 years old at the time her $300,000 house is sold, is entitled to approximately $130,000 of the proceeds. In the context of a Medicaid application, that $130,000 will be deemed an available resource and may result in a denial of benefits.

Clearly, if you are concerned about paying for long-term care and considering Medicaid planning for your mother, it is important to consult with an experienced attorney before selling the real property that is subject to her life estate.

Linda M. Toga provides legal service in the areas of estate planning, estate administration, Medicaid planning, wills and trusts, marital agreements, small business services, real estate and litigation from her East Setauket office.

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By Nancy Burner, Esq.

Question: I would like to protect my home by transferring it to my children but am concerned about losing my tax exemption. Is there a way that I can protect my home while still maintaining my exemptions?

Answer: Yes there is. For many of our clients, without the property tax exemptions that they receive, staying in their homes would be a hardship. When faced with the decision of either protecting that home or potentially losing the exemptions, the decision is not an easy one. 

The good news is that you can get the asset protection you desire while still maintaining your tax exemptions.  One way to achieve this is with an irrevocable trust, oftentimes referred to as a Medicaid protection trust. These trusts enable our clients to maintain a certain level of control and beneficial ownership over their home while garnering the same potential asset protection that they would achieve through an outright transfer.   

The way this works is that you as the owner of the property would create a trust; you are the grantor, sometimes referred to as the settlor. You would name a third party (anyone other than your spouse) to act as trustee, and the trust would also provide for distribution at the time of your death to your named beneficiaries. Oftentimes, the trustee and the beneficiaries are one and the same.

Once you transfer the home (or any other nonretirement assets) into the trust, the “clock” begins to run for the purpose of asset protection in the context of Medicaid planning. As you may know, in New York State, we currently have a five-year look back when applying for Chronic Care Medicaid, which means that once assets have been transferred into a properly drafted irrevocable trust and five years has passed, they are no longer countable resources when applying for Medicaid. 

The trust is considered a grantor trust for tax purposes, meaning that the grantor is still considered the owner for tax purposes. Because the grantor retains certain rights with respect to lifetime use of the properties in the trust, the grantor is permitted to maintain any tax benefits associated with ownership of the property, including the Enhanced STAR benefit, veteran’s benefit and any capital gains exemptions they would otherwise be eligible to receive.   

Contrast that with a decision to transfer the property outright to your children for the purpose of protecting the asset, which would result in a total loss of all preferential tax treatment. 

Transferring your home or any nonretirement assets into an irrevocable trust offers flexibility in planning, maintenance in any current tax exemptions and complete asset protection. To determine if an irrevocable trust is appropriate, you should consult an elder law expert in your area.

Nancy Burner, Esq. has practiced elder law and estate planning for over 25 years.

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