For many New Yorkers, planning for the future involves not only growing their assets but also protecting them. A significant concern, especially as we age, is the potential cost of long-term care and how to plan for it without depleting a lifetime of savings. This is where estate planning tools like trusts become invaluable. Specifically, for those considering Medicaid to cover long-term care costs, understanding the difference between a revocable and an irrevocable trust is crucial.
As a Queens, NY trusts and estates attorney, I often guide clients through this complex decision-making process. The choice between a revocable and an irrevocable trust for Medicaid asset protection is not a one-size-fits-all solution. It depends on your individual circumstances, financial situation, and long-term goals.
The Revocable Living Trust: Flexibility and Control
A revocable living trust is a popular estate planning tool for many reasons. As the name suggests, it is a trust that you, the grantor, can change, amend, or even revoke entirely during your lifetime. You can transfer your assets into the trust and typically act as the trustee, maintaining complete control over those assets. You can buy, sell, and manage the assets within the trust just as you would if they were in your own name.
The primary benefits of a revocable trust are:
- Probate Avoidance: Assets held in a revocable trust pass directly to your beneficiaries upon your death, avoiding the often lengthy and expensive probate process.
- Continuity in Case of Incapacity: If you become unable to manage your own affairs, your designated successor trustee can step in and manage the trust assets for your benefit without the need for a court-appointed guardian.
- Privacy: Unlike a will, which becomes a public record upon your death, a trust agreement is a private document.
However, when it comes to Medicaid planning, a revocable trust has a significant drawback. Because you retain control over the assets in the trust, Medicaid considers those assets to be "countable" resources when determining your eligibility. This means that if you need to apply for Medicaid to cover long-term care costs, the assets in your revocable trust will likely need to be spent down before you can qualify.
The Irrevocable Medicaid Asset Protection Trust: Shielding Your Legacy
An Irrevocable Medicaid Asset Protection Trust (MAPT) is a specialized type of trust designed to protect your assets from being counted for Medicaid eligibility purposes. Unlike a revocable trust, once you transfer assets into an irrevocable trust, you do not have access to the principal in the trust, although you have access to the income. You relinquish control over the assets to the trustee you appoint (usually a child). You can retain the right to change your beneficiaries, change your trustee(s), and in many cases can revoke the irrevocable trust if need be.
This slight loss of control is the key to why an irrevocable trust works for Medicaid planning. By giving up control, the assets are no longer considered yours for Medicaid purposes. This can be a powerful tool for preserving your life's savings for your loved ones.
Key features of a MAPT include:
- Asset Protection: The primary benefit of a MAPT is that the assets held within it are not considered countable resources by Medicaid, provided they have been in the trust for a sufficient amount of time.
- The Five-Year Look-Back Period: In New York, Medicaid has a 60-month (five-year) "look-back" period. This means that any assets you transfer to an irrevocable trust within the five years before you apply for Medicaid may be subject to a penalty period, during which you will be ineligible for benefits. Therefore, it is crucial to establish and fund a MAPT well in advance of needing long-term care.
- Income to the Grantor: While you cannot access the principal of the trust, you can still receive the income generated by the trust's assets. This can provide you with a stream of income during your lifetime.
- Protection for Your Home: You can transfer your primary residence into a MAPT and retain the right to live there for the rest of your life. This can be an effective way to protect your most valuable asset from being consumed by long-term care costs.
Making the Right Choice for Your Family
The decision of whether to use a revocable or an irrevocable trust for your estate plan is a significant one. Here’s a breakdown of when each might be appropriate:
You might choose a revocable trust if:
- Your primary goals are to avoid probate and provide for a smooth transition of your assets upon your death.
- You are not currently concerned about the potential need for long-term care or have other means to pay for it.
- You want to maintain maximum flexibility and control over your assets.
You might choose an irrevocable Medicaid Asset Protection Trust if:
- Your primary goal is to protect your assets from the high costs of long-term care and to qualify for Medicaid benefits.
- You are willing to relinquish some level of direct control over the assets you place in the trust.
- You are planning well in advance and can navigate the five-year look-back period.
Consult with an Experienced Elder Law Attorney
Navigating the complexities of Medicaid rules and trust law is not something you should do alone. An experienced elder law attorney can analyze your unique financial situation, explain your options, and help you create a comprehensive estate plan that meets your specific needs and goals.
At the Law Offices of Roman Aminov, P.C. we are dedicated to helping our clients in Queens and throughout New York City protect their assets and plan for the future. We can help you determine whether a revocable trust, an irrevocable trust, or a combination of other estate planning strategies is the right choice for you and your family. Contact us at 347-766-2685 today to schedule a free phone consultation and take the first step toward securing your legacy.
