Should I Have an Irrevocable Trust?

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Question: I am a 72 year old widow. I own my house and have an IRA but have very little in cash assets, do I need a trust?

Answer: Yes, you could benefit from having an irrevocable trust. For you, the main purpose of this trust would be to protect your house so that you could receive Medicaid in the future to help cover your long term care costs, if necessary, while still giving your house to your children or whomever you choose when you die.

You are the “grantor” or creator of the trust and you would name someone else to be your “trustee,” often a child or close niece or nephew. Assets are put in a trust by retitling them. For example, a stock account or brokerage account would be retitled in the name of the trust, or a new deed would be signed in which you would give the house to your trust.

Once you sign the new deed, you will still have full rights and responsibilities over your house for your lifetime even though it will be in the name of the trust. This includes any rental income that is generated by the property if you decide to move out and rent the house or if you have an attached apartment.  Since you have the full lifetime use of your house, you will keep all your exemptions including Senior Citizen, STAR and Veterans exemptions. At your death, the assets of the trust would be distributed as you specify in you trust, similar to the distribution of assets in a will.

30 months after the property is in the trust it will be protected for community Medicaid and five years later it will be protected for nursing home Medicaid purposes. This means the property will not be considered as part of your assets when your Medicaid eligibility is determined and Medicaid will not be able to collect against the property after your death. If you decide to sell the property during your lifetime, the trust will sell the property and either use the money to purchase a new house for you or keep the money in a cash account inside the trust. Even if you sell the house, the five year look back period on that house, or the cash equivalent, still runs from when you first put the house into the trust.

The biggest concern with this kind of trust is that many people are afraid of losing control of their assets. Do not fear, even though your trust will own the residence, you still maintain some control. You can keep the power to change the trustees or the beneficiaries of your trust at any time.

As for your other assets, your IRA does not need to be transferred into the trust because it is already a protected asset for Medicaid. The only money from your IRA that you will be required to use for your care is the income you receive from the IRA, the required minimum distributions based upon your life expectancy as determined by the Department of Social Services. It is possible to put cash assets into a trust, however you would want to speak with your attorney to make sure you leave enough funds outside of the trust to use in your day to day life.

By creating this irrevocable trust you are taking the first step to ensure you can pass one of your largest assets, your house, to whomever you choose when you die while still making sure that your healthcare is taken care of during your lifetime.

Nancy Burner, Esq. & Britt Burner, Esq.

Burner Law Group, P.C.

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