2014-04-18 / Columnists

Spotlight On Elderlaw:

Proper Planning With “Irrevocable” Trusts
By Alexander Bader, Esq.

When a client comes to our office for an initial consultation, the attorney that the client is meeting with will obtain information about the client’s family structure, asset picture and the client’s particular goals. Most often, a primary goal of our prospective clients is to “protect” their assets so that such assets can be passed to their children (or other loved ones), upon the client’s passing, as efficiently and with as much value retained as possible. In helping our client reach this goal, “trusts” are often employed as extremely useful tools.

Two important questions logically follow from what is written above: (1) What exactly is it that assets need “protection” from? (2) What precisely is a “trust”? Answers:

(1) In short, assets should be protected as best as possible from the astronomical costs of long-term care. Over 100 million Americans will unfortunately face a chronic illness at some point in their lives. Many people have the misconception that their health insurance and/or Medicare (if one is over 65) would help cover a chronic illness but this is not true. Only “acute illnesses”, or injuries/illnesses from which you are rehabilitating, would be covered by such insurance.

By contrast, the only avenues available to help in paying for in-home care or nursing home care for a chronic illness are long-term care insurance and the Medicaid program. Given that many individuals cannot afford the often high premiums for long-term care insurance, the only option remaining to help with costs associated with a chronic illness, such as the $12,000.00 minimum per month that it costs in New York State to privately pay for a nursing home, is the Medicaid program.

An additional way that your assets can be depleted without proper planning is through legal fees accrued in relation to surrogate’s court proceedings that may take place upon your passing. If a person dies with assets in his or her name alone, with no joint owner or beneficiary designation, that asset (whether financial, real estate, or personal property) cannot be given away without some surrogate court involvement. The process of determining the person or persons to inherit such property is known as probate (when a person dies with a Will in place), or the administration process (when no Will has been done).

Now the key: in many circumstances, proper advance planning with Irrevocable Trusts can minimize or totally eliminate the costs described above!

(2) A Trust is a legal arrangement in which one party (the Trustee) holds and manages property for the benefit of another party (the Beneficiary), according to the terms of the arrangement. Different types of Trusts can be used for various purposes such as avoiding the costs and delays of probate, preserving assets in the event of a long-term illness, tax planning, supplementing public benefits, planning for disabled children, among other purposes.

Our clients frequently choose to establish Irrevocable Trusts to avoid probate, and to protect assets and real estate from the costs of in-home care and nursing home care. One of the advantages of the irrevocable trust is that upon the Grantor’s death, remaining Trust assets will be distributed directly to named beneficiaries without the costs, problems, publicity, or delays of probate/administration. Another important advantage of the Irrevocable Trust is that assets “re-titled” in the name of one’s Irrevocable Trust will be protected from the cost of in-home care immediately and the future costs of nursing home care (5 years from the transfer of the assets). Since one’s home is often his or her most valuable asset, engaging in the type of trust planning described in this article to protect the value of one’s home (as well as other assets where appropriate) is often extremely beneficial to the financial well-being of our clients and their families.

Alex Bader is an associate attorney at Brady & Marshak, LLP, Attorneys at Law. The attorneys can be reached at 1-718-738-8500.

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