Medicaid Trust (Irrevocable Grantor Trust)
Many people are unaware that creating a Medicaid Trust in NYC, Westchester, or the NY Metro area can help them protect the assets they have accumulated over a lifetime of hard work. A trust, as used in Elder Law planning, is a legal entity that allows you to preserve assets that you might otherwise be forced to spend on your care. Think of a trust as another person.
In order to be eligible for Medicaid, you must have very little money in your name. If you do not plan, Medicaid will insist you use what Medicaid calls your “resources” before it provides even a dollar of benefits. Your "resources" include bank accounts, investments, cash value of life insurance, co-ops, real property, and more. One way to become eligible for Medicaid is to “spend down” your assets.
However, you do not have to spend down all your money and property if you create and fund a properly structured Irrevocable Asset Protection Trust. When you transfer your assets to an irrevocable trust, they can no longer be regarded as your resources for Medicaid purposes, or by potential creditors. Trusts can be used to protect real estate, cash, other financial assets, and even valuable tangible assets such as art or jewelry.
An Irrevocable Asset Protection Trust, also known as a “Medicaid Trust” or a “Medicaid Asset Protection Trust,” can be structured so that the income generated from the assets in the trust will be paid to you. With an asset protection trust for elderly residents of NYC, Westchester County and the NY Metro Area, the income from the trust can be spent to help maintain the lifestyle you’ve worked hard to create. While you will have no right to access or demand principal from the trust, your Trustees can be given the discretion to distribute principal amounts to beneficiaries (often children or other family members) who can use these distributions for your benefit.
If the Elder Law asset protection trust holds title to your home in NYC, Westchester, or elsewhere in New York, you can still have the right to live there for the rest of your life, or in another residence that the trust might purchase in the future. If you own a co-op apartment, permission of the co-op’s Board of Directors must first be obtained before you can transfer your co-op shares and proprietary lease into the trust.
Aside from protecting your assets from Medicaid eligibility requirements, transferring assets to a trust is almost always preferable to transferring money or assets to children directly. Here’s why: most trusts protect the assets from exposure to future creditors, lawsuits and legal liability. If a child is holding your assets, and incurs a liability, suffers a business failure or a divorce, or even dies before you, those assets could be exposed to potential loss. Assets held in most irrevocable trusts will be protected, while funds held by individuals will not.
In addition, assets that pass via an asset protection trust, rather than being gifted during the lifetime of the donor, allow the beneficiaries to avoid capital gains tax on unrealized gains accrued during the lifetime of the grantor.
There is an important time element to the planning that may affect what percentage of your assets you can save. If you need nursing home services, or services in your home (or other “Community Medicaid” services), the rules are different. Compared to other states, New York has very generous Medicaid rules, but the rules are becoming more restrictive.
The timing of many of these restrictions on New York's Community Medicaid programs has been delayed due to the Coronavirus pandemic, and the implementation schedule remains a question mark. The one thing that is certain is that the earlier you act, the more of your assets you are likely to save.
Setting up and funding a trust can help you to make your financial resources last as long as possible and ultimately fulfill your estate plan. As an Elder Law, Estate Planning, and asset protection firm, Lamson & Cutner can help you evaluate whether a trust makes sense for your situation. To learn more, if you or your loved one lives in NYC, Westchester or the NY Metro area, contact the experienced attorneys at Lamson & Cutner today.