Remember, the purpose of a revocable trust is to avoid probate and following fact patterns make it a necessity to use a revocable trust.
- Owning property outside of New York State
If you own property outside of New York State in your individual name, a proceeding must be commenced in the other state to transfer or sell that property. This means, more time and more legal fees.
- You have no relationship with your next of kin
Regardless of whether you have named your next of kin as beneficiaries of your estate, the probate process in New York requires that they be contacted to sign certain papers. If they refuse, or their whereabouts are unknown, this can greatly complicate your probate proceeding.
- You have disabled or minor beneficiaries or heirs
A Court will generally appoint a guardian ad litem to represent the interests of a disabled or minor person. Working with a guardian ad litem could significantly delay the administration of your estate.
- You are creating trusts for the lifetimes of beneficiaries
It is very common to create trusts for minor children. It is becoming more common to create these trusts for the lifetime of the child for asset protection purposes. If you create these trusts through a probate proceeding, you will be required to go back to Court every time there is a change, such as a change in trustee.
Notwithstanding the above fact patterns, my experience over the recent few years is that our interaction with the Court is becoming increasingly more and more complicated from an administrative perspective. This results is time delays, legal fees and anxiety. We are recommending, on a more frequent basis, revocable trusts.
Obtaining eligibility for Medicaid often requires transferring assets to a spouse or other family members. When transferring assets, one must always consider the tax consequences of doing so. Obviously, there are many types of assets and each asset class may be treated differently from a tax perspective.
There is no simple answer to your question. Depending on the individual tax situations of both the grantor and grantee, it might make sense to sell the underlying assets, while in other instances, it might make sense to transfer the brokerage account without selling the underlying assets.
It is important to work with someone who understands how to calculate the capital gain on the sale or transfer of a capital asset, such as a house or shares of stock. That same person must also be mindful as to when ordinary income could be triggered from the sale or transfer of an ordinary asset, such as an annuity. I am both an elder law attorney and accountant.
A very common mistake is to simply transfer your house to your children without using a trust. By doing so, you eliminate certain tax benefits that your children would ordinarily be able to recognize upon the sale of your house after your death.
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For many families, a good portion of their wealth exists through the equity in their home. The home may also be the most sentimental asset as it carries many memories and emotional ties. We often counsel clients on different planning techniques to protect the home where Medicaid is contemplated to pay for nursing home or home care. This is a review of just how Medicaid may take your home if you don’t implement some form of planning to protect your assets.
It is inevitable that we may all at some point fall victim to an illness and require care, including nursing home care or home care. Medicaid has become the insurance of the middle class, especially in nursing home and home care cases.
In order to be eligible for Medicaid, you cannot have more than $15,150 in assets. When contemplating Medicaid eligibility, the home is generally treated as an exempt asset for purposes of determining whether you have less than $15,150 in resources. However, Medicaid keeps track of those benefits and may look for them to be repaid.
If you are a Medicaid recipient in a nursing home, a lien can be placed against your home if you are not reasonably expected to return home. A lien allows Medicaid to recoup what they paid on your behalf when the property is sold. Prior to placing the lien, Medicaid must provide notice to you that they intend to file a lien against your home. If proper notice was not provided, there may be an opportunity to remove the lien.
Notwithstanding the above, Medicaid cannot place a lien against your home if any of the following persons live there:
- your spouse;
- a minor child, or a child of any age who is certified blind or disabled;
- a sibling who has an equity interest in the home and who was residing in the home for at least one year preceding the date you entered the nursing home.
A lien also cannot be placed against your home if you set up a Medicaid Trust and get through the 5-year look-back period. This is why the Medicaid Trust has become such a popular planning technique.
If you are a Medicaid recipient while receiving Medicaid homecare benefits, Medicaid cannot place a lien against your home, but they can file a claim against your probate estate upon your death if no planning has been done to avoid probate. For instance, when you die, your Will needs to be probated. Once the Will is probated, Medicaid will send the Executor of your estate a letter demanding payment for benefits paid. The Executor of your estate cannot ignore this otherwise they may become personally liable for the amount.
In a recent case, an individual required home care and did not retain an elder law attorney to work through the Medicaid home care process. Although the home was not considered an available asset, it became part of the Medicaid recipient’s probate estate when she died since no planning was done to avoid probate. In this case, Medicaid filed a claim and the entire proceeds of sale where paid to Medicaid at the closing table. Although she failed to plan in advance with a Medicaid Trust, this could have been avoided using a Revocable Trust to avoid probate.
Fortunately, if you take the time to consult with us, there are many options available to protect your home in advance of these unfortunate scenarios. We regularly use Medicaid Trusts, Revocable Trusts and other planning techniques to plan in advance.
Salvatore M. Di Costanzo is a partner with the firm of Maker, Fragale & Di Costanzo, LLP located in Rye, New York and Yorktown Heights, New York. Mr. Di Costanzo is an attorney and accountant whose main area of practice is elder law and special needs planning. He is a member of the National Academy of Elder Law Attorneys and a frequent author and lecturer on current elder law and special needs topics. Since 2013, Mr. Di Costanzo has been selected each year by the rating service, Super Lawyers as a New York Metro leading elder law attorney. He can be reached at (914) 925-1010 or via e-mail at email@example.com. Visit his practice specific website at www.plantodayfortomorrow.com.