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Asset Protection Trust

One of the most effective methods to protect your assets when planning for nursing home care is an Irrevocable Trust. When placing any of your assets into an Irrevocable Trust that has been properly drafted, you are giving up any meaningful control of the asset itself, but may reserve income earned from that asset, or if the asset placed into the Trust is your residence, you can reserve a “Life Estate” or “Life Use” of your residence. When properly done, you will retain your STAR, Senior Low Income Exemptions, and Veteran Exemptions, where applicable. A camp or second home can also be placed in the Trust, also subject to your reserved Life Estate or Reserved life use, if you choose.  Once you do this and once five years have passed by, then the asset(s) placed into such an Irrevocable Trust are “protected” from the costs of a nursing home, under current law. Once an Asset Protection Trust has been created and funded, you cannot get your assets back, so you should not put assets into an Irrevocable Trust if there is any possibility you will change your mind in the future and want them back.

Said in a different way,  Irrevocable Trusts can be  drafted so income ( e.g. bank interest or stock dividends) may be payable to the grantor (person establishing the trust) for life, but because legal title of the assets is held by the Trustee, the assets are no longer under your control and therefore no longer countable when determining Medicaid eligibility. When setting up this type of trust, it is very important that you choose someone whom you fully trust to be the Trustee, since the terms of the agreement are Irrevocable and cannot be changed. Under some circumstances, you can reserve the right to change the Trustee, and in limited circumstances, even alter the potential beneficiaries of the Trust. The Trust language which allows for these limited modifications is highly nuanced and requires very specialized drafting.
Funding of an Irrevocable Trust is subject to the five year “look-back” period for Medicaid Nursing Home applications; therefore, it is important to start your planning early. If you transfer any assets into an Irrevocable Trust and then apply for Nursing Home Medicaid within five years of that transfer, you will be subject to a “penalty period” during which your Medicaid application will be denied. The length of the penalty period is a function of the value of the Transfer into the trust, based upon the value of the transferred assets on the date of the transfer.
A Revocable Trust is not an asset protection Trust. A Revocable Trust may be changed (revoked or amended) by you at any time, and because you retain that complete control over the Trust assets, then the assets in the Trust are considered fully available to you in the event you need to go into a nursing home.  Because the person creating the trust is also the person seeking nursing home care, the assets placed into the trust are accessible to pay for nursing home care, and the assets are countable when determining Medicaid eligibility.

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The Witecki Law Office
8 South Church Street
Schenectady, NY 12035
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