Many residents planning their estate in Maspeth that are approaching their golden years want to know if there is a chance for them to get Medicaid coverage in the coming years. Before their inquiry can be answered an attorney must sit down with them and assess whether a revocable or irrevocable trust is right for them. In the event they are willing to go irrevocable and deal with the cons that are associated with it, Medicaid can indeed be an option for them. Let’s understand a little more about the different kinds of trusts and how they effect estate planning.
With regard to estate planning, trusts can either be dissolved or revoked. At first glance a revocable trust seems to be the more convenient option of the two, having peace of mind and comfort of knowing that if you change your mind you can revoke the initial trust you created. It is important to take note that there are, however, a few circumstances where an irrevocable trust may be in your best interest.
In order to truly comprehend trusts, it is key to first understand the idea of incidents of ownership. When establishing a revocable trust, the patron can repossess his or her personal property and revoke the trust at any time. Additionally, the patron can initially assume the position of trustee and the beneficiary, allowing for complete control of the trust. The patron is preserving incidents of ownership due to this provision. An irrevocable trust, on the other hand, is quite different. In an irrevocable trust, the trust cannot be revoked at any time and the patron relinquishes incidents of ownership – invalidating the patrons access to changing the terms of the trust and disabling direct access to the assets. This can definitely be a good thing, even though it appears exceptionally limiting and controlling. Here are very good reasons why you might want to consider an irrevocable trust.
Asset Protection During Your Elder Years
Long-term care, such as nursing homes or assisted living communities are incredibly costly. This is significant because most senior citizens will eventually need such a service in one form or another and it is not covered by Medicare. If, however, you are eligible, there is another government health insurance program that will cover the cost of long-term care called Medicaid.
There is a low asset limit to consider, however, due to the fact that the Medicaid program is geared toward individuals with incredibly inadequate resources. In order to be eligible and have Medicaid cover the cost of long-term care, your assets would have to be unloaded. Giving your assets away to friends and family is one approach you can take. Basically, you would be pre-awarding them their inheritance.
A financially beneficial option to consider during your mature years would be to transfer your assets into an irrevocable income-only Medicaid trust. The living trust is often used for Medicaid planning allowing you to retain any income that the trust generates, though the principal is inaccessible.
It is important to keep in mind that your Medicaid application will be denied if you happen to have given away any of your assets within five years of submitting your application, with the addition of an imposed penalty. Consider, for example, that if the average cost of care in a nursing home in your state is $100,000. You gave away $300,000 to friends and family within the restricted five year period. The inheritance you pre-awarded could very well have paid for three years of care in a nursing home, thereby delaying your eligibility for three years.
Estate Tax Know-How
In the US the federal estate tax is quite hefty and can take a nice chunk out of your estate if you have been financially successful. The federal estate tax carries a maximum rate of forty percent. There is, however, a fairly substantial exclusion, the number of funds that you can transfer before the federal estate tax is applied. For 2018, the exclusion is $11.8 million for the federal estate tax.
There are only a few states that apply a state-level estate tax that is separate from the federal estate tax. New York happens to be one of the few that has an estate tax. Keeping in mind there will be changes in the upcoming year, the current the top rate is 16 percent and the exclusion amount is $5.25 million. In 2019 the New York exclusion amount will be raised to equal that of current federal estate tax exclusion.
Transferring your assets into an irrevocable trust is an option if you are subjected to state-level estate taxes. Upon doing this your assets would not be considered as part of your estate and would no longer be exposed to taxes. It is good to note that there is a category of trusts that allow for any subsequent transfers with having an applied tax deduction.
Contact our professional and experienced legal team today. Let us guide you through the process of estate planning and all the options available to you.
Law Offices of Roman Aminov 147-17 Union Tpke, Flushing, NY 11367 (347) 766-2685 https://www.aminovlaw.com/