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Ask Nancy…

scales of justiceby Nancy Burner, Esq.

Question: My wife and I recently executed a Revocable Trust and re-titled our home and some bank accounts into the name of the trust thinking that we had taken the first steps toward protecting our assets should one or both of us need nursing home care in the future. I just heard from a friend of mine that a Revocable Trust does not protect my assets and that what I should have considered was an Irrevocable Medicaid Trust. Could you explain the difference?
Answer: Although a Revocable Trust can be extremely beneficial for the creator of the trust, unfortunately, one benefit which can not be realized from a properly created and funded Revocable Trust is asset protection. Revocable Trusts have become increasingly popular planning tools for individuals who are interested in avoiding probate, and who are concerned with the orderly and private administration of their assets at the time of their death. Because the grantor (creator) of a Revocable Trust maintains complete control over the assets in the trust during their lifetime, and in most cases, acts as trustee of their own trust, assets held in the trust are considered completely available to the creator, sometimes referred to the grantor or settlor. Accordingly, these assets will also be considered completely available should the creator need long term nursing home care.
On the other hand, a properly funded Irrevocable Trust can provide for both asset protection and asset management. The creation of an Irrevocable Trust allows you to place your home and any non retirement asset you wish to protect into a trust to be managed by a third-party trustee according to the provisions of your trust. If you are the grantor of an Irrevocable Trust, neither you nor your spouse may function as the trustee. Grantors commonly designate their children as trustees. If the ownership of your residence is transferred to the trust, you retain the right to live in the premises during your lifetime, yet the house could be sold if need be and replacement property could be purchased by the trustee. You retain any property tax exemptions that you were entitled to prior to placing your residence into your Irrevocable Trust, including senior citizen and STAR. If you decide to sell your home, the trustee can do so on your behalf and the trust would then hold the liquid funds resulting from the sale. Liquid funds, such as bank accounts, money market accounts, certificates of deposit, stocks, and bonds can also be transferred into your Irrevocable Trust. If your Irrevocable Trust holds title to such investments, you as the grantor would continue to earn all the income from the investments but you would not be entitled to the principal. With respect to asset protection, once property, in the form of real estate or liquid assets, has been in your properly drafted Irrevocable Trust for a period of five (5) years, it is no longer considered an available resource in determining Medicaid eligibility for nursing home care. Therefore, although you have not started the process of protecting your assets, there are other benefits which can be realized from the creation and funding of a Revocable Trust. However, if asset protection is your goal, you should consult with an experienced Elder Law attorney to determine which course of action is best for your particular circumstance.

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