Do Nothing vs. Long Term Care Insurance vs. Gifts vs. Irrevocable Trust–Part 4

September 9, 2015

This edition of the Koldin Report E-Newsletter is Part 4 in a series comparing the pros and cons of (1) Doing Nothing (2) Purchasing Long Term Care Insurance (3) making gifts to your children, and (4) transferring your savings and family home to an Irrevocable Family Trust (also sometimes referred to as Irrevocable Medicaid Trust). The previous newsletters can be found on our website by clicking here.


If you need long term care in a Nursing Home or at Home, which in Upstate New York costs around $10,000 per month, there are 3 ways to pay for it:
(1) Pay for your care with your life savings
(2) Pay for your care with Long Term Care Insurance
(3) Pay for your care with Medicaid

In planning for how you are going to pay for Nursing Home or Home Care if you someday need these services, you have 4 basic choices:
(1) Do Nothing
(2) Purchase Long Term Care Insurance
(3) Make Gifts to your Children
(4) Transfer to an Irrevocable Trust

In the previous newsletters in this series, we reviewed the options of doing nothing, purchasing long term care insurance, or making gifts to your children. In this newsletter we review the pros and cons of transferring your assets to an Irrevocable Trust.

Transferring Assets to An Irrevocable Trust

An Irrevocable Living Trust is created by a written agreement between you and the person you choose to manage the assets in the Trust known as the Trustee. The terms of the Trust Agreement should be tailored to meet your specific needs and objectives.

On your death, your trust assets will be distributed directly to your named beneficiaries without the costs, problems, publicity, or delays of Probate.

If 5 years goes by from the date you transfer your savings and property to your Irrevocable Trust, the Medicaid Agency will not penalize those gifts. Those transferred assets will be protected from being lost towards the cost of Nursing Home Care.

When assets are transferred directly to children, the children become the owners of those assets. Most of the risks and disadvantages involved in transferring assets directly to children discussed in the previous newsletter can be avoided with a properly written Trust Agreement.

There are many ways to prepare an Irrevocable Trust and the terms of the Trust can be different depending on your circumstances and how your attorney writes his/her Trusts. Therefore, the information provided below is based on a typical Irrevocable Trust prepared by the Koldin Law Center, P.C.

An Irrevocable Trust prepared by the Koldin Law Center, P.C.:

■ Will not result in income tax consequences for children

■ Will not cause financial aid problems for grandchildren

■ Will not cause you to lose your life savings if your child becomes bankrupt, is sued, involved in a divorce, dies before you, or becomes ill and needs nursing home care

■ Will not result in gift tax liability

■ Will avoid probate for all assets you transfer to your Trust

■ Will receive a stepped-up basis to the date of death value of your home and investments that are sold after your death for capital gains tax purposes

■ Will give you the right to change the beneficiaries of the Trust. Therefore, if circumstances change in your children's lives or in your relationship with your children, you retain ultimate control over who inherits your life savings and family home

In addition, transferring your family home to an Irrevocable Trust Prepared by Koldin Law Center, P.C. will have the following additional advantages:

■ You will still qualify for the $250,000 family home tax exemption on capital gains ($500,000 for husband and wife) when your home is sold

■ You will still receive certain Tax exemptions such as STAR and Veterans

■ If a life use is reserved in the deed transferring the property to the Trust, this would prevent the Trustees from being able to sell your residence while you are still residing in the residence unless you sign the deed (Note: Your Power of Attorney might be able to sign the deed on your behalf)

For more information about Irrevocable Trusts, please see our website by clicking here.

In Summary, as can be seen from all 4 newsletters in this series, there are advantages and disadvantages with each option. At the Koldin Law Center, P.C., with offices in Syracuse and Rochester, New York, we have over 50 years of experience helping individuals plan for immediate crisis and long term care. Our attorneys are available to discuss your estate planning options. We do not charge a fee for the initial consultation. At that appointment, we will review with you all of these options: (1) Doing Nothing (2) Purchasing Long Term Care Insurance (3) making gifts to your children, and (4) transferring your savings and family home to an Irrevocable Family Trust. We welcome your children, family attorney, accountant, and/or financial planner to be present at the initial consultation.

There is something you can do.