Estate Planning Isn’t Just For The Elderly

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Revocable or Irrevocable Trust

Revocable or Irrevocable Trust:
Which Trust is Better for Me and My Family?

*By: Anthony J. Enea

My clients are always asking me whether an Irrevocable Trust is better than a Revocable Living Trust and vice versa. To their dismay the answer is that one is not better than the other, that they are both excellent estate and elder law planning tools and depending on what their objectives are they both can be of significant value when used as part of their planning.

A Revocable Living Trust is a trust agreement that is amendable and revocable during one’s lifetime. The creator(s) of the trust can be both the creator and the sole trustee (alternate trustees can be appointed). Thus, giving him or her full and unfettered control over the assets transferred to the trust during his or her lifetime. He or she can also specify to whom and in what amounts/percentages the assets titled in the trust are to be distributed to upon his or her demise. At death of the creator(s) the Revocable Trust becomes irrevocable, and thus, the assets titled in the name of the trust will not be subjected to probate upon his or her death. Upon the death of the creator(s) the named trustees of the trust will then be able to make payments of the decedent’s bills, taxes and expenses and make distributions to the named beneficiaries of the trust without Court intervention required with the probate of a Last Will & Testament. The Revocable Living Trust in essence can accomplish all that is accomplished with the use of a Last Will & Testament while avoiding the necessity of Probate.

The one essential for the effective utilization of a Revocable Trust is that one’s assets, such as bank accounts, stocks, bonds and real property (house, condo, co-op) must be titled (re-titled) in the name of the trust. The trust does no control assets which are not titled in its name.

The Revocable Living Trust also has added advantages of allowing the alternate named Trustees to manage the Trust assets in the event the Creator of the Trust becomes incapacitated or disabled.

However, the Revocable Living Trust is not the vehicle to be utilized if your goal is to protect assets from the cost of long term care (in home care and/ or nursing home) as the assets titled in its name are considered available resources for purposes of Medicaid eligibility, and Medicaid can impose a lien/claim against the assets titled in the name of the Revocable Living Trust.

The Avoidance of the Probate process and associated legal fees, costs and delays is the primary reason for the use of a Revocable Living Trust.

With respect to the Irrevocable Trust, there are various types of Irrevocable Trusts with differing purposes and objectives. For example, if you want to gift assets during your lifetime to a trust to be used for the benefit of your children and/or grandchildren an Irrevocable Trust might be an appropriate vehicle. If you have a disabled child and/or grandchild an Irrevocable Special Needs Trust is often utilized. If you have significant life insurance assets and don’t want the assets to go outright to the beneficiary, and don’t want the life insurance death benefit to be part of your taxable estate, an Irrevocable Life Insurance Trust is often utilized.

Perhaps, the most common Irrevocable Trust being utilized by seniors today is an Irrevocable Medicaid Asset Protection Trust also referred to as an Irrevocable Income Only Trust. Unlike a Revocable Living Trust, this Irrevocable Trust cannot be amended and/ or revoked by the creator, and neither the creator and his or her spouse should be appointed as Trustee of said Trust.

The primary purpose of the Irrevocable Medicaid Asset Protection Trust is to shelter assets so that if one needs home care and/or nursing home care services in the future that the assets titled in the name of the Trust are not counted as available resources for purposes of Medicaid eligibility and are not resources against which Medicaid has a claim and/or lien against for the value of the series they have provided.

The transfer of assets to the Irrevocable Trust will disqualify the creator of the trust and his or her spouse from eligibility for nursing home Medicaid, (not home care Medicaid) for 5 years (“the look back period”). However, once the five years have elapsed the assets in the trust are no longer available resources for purposes of Medicaid eligibility and Medicaid cannot file a claim and/ or lien against the trust assets.

This trust is ideal for individuals wanting to protect their home and a portion of their life savings against the ravages of the cost the cost of long term care. With the average cost of a nursing home in the New York Metropolitan area being in excess of $15,000.00 per month, failing to do so can have dire consequences.

Unlike the Revocable Trust, this trust does not allow the trustees to distribute the trust principal to or for the benefit of the creator(s). However, the trust creator(s) can receive any income generated by the trust assets and have the right to reside in and utilize any real property transferred to the trust during their lifetime. The trust creator will continue to be able to utilize any tax exemptions available such as STAR, Senior Citizen and Veterans and will also be available to take advantage of the personal residence exclusion for income tax purposes in the event the residence is sold.

Additionally, while the Trustees cannot distribute trust principal to the Creator(s), the Creator(s) can give the Trustees the power to distribute principal and income to their children and others. This can be of value if access to the trust principal is ever needed.

Like the Revocable Trust, the assets titled in the name of the Irrevocable Trust will not be subjected to the Probate Process.

As can be seen from the above, it is really not a question of which Trust is better, but a question of one’s comfort level and the goals and objectives one is seeking to accomplish.

Anthony J. Enea, Esq. is the managing member of the firm of Enea, Scanlan & Sirignano, LLP of White Plains, New York. His office is centrally located in White Plains and he has a home office in Somers, New York.

Mr. Enea is the Immediate Past Chair of the Elder Law Section of the New York State Bar Association.

Mr. Enea is a Past President and a Founding Member of the New York Chapter of the National Academy of Elder Law Attorneys (NAELA). He is also a member of the Council of Advanced Practitioners of NAELA.

Mr. Enea is a Past President of the Westchester County Bar Association.

Mr. Enea is the President of the Westchester County Bar Foundation.

Mr. Enea is the Vice President of the Columbian Lawyers Association of Westchester County.

Mr. Enea and his firm concentrate their practice on Elder Law, Asset Protecting Planning, Medicaid Applications (Nursing Home and Home Care), Guardianships (contested/non-contested), Wills, Trusts and Estates, Estate Litigation and Nursing Home Negligence.

Enea, Scanlan & Sirignano, LLP