Fair Hearing Decision re Home Equity Line of Credit and Irrevocable Trust
This edition of the Koldin Law Center E-Newsletter discusses a Fair Hearing Decision by New York State regarding property owned in an Irrevocable Trust that had a home equity credit line.
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A home equity credit line is where you can borrow funds from a bank at any time and your home serves as collateral. Typically the bank will provide you with a checkbook connected to the credit line where you can write checks to borrow funds as needed.
Home equity lines of credit are sometimes used to make capital improvements on your family home. Sometimes people use a home equity credit line to pay for expenses not related to the home.
When a family home is transferred to an Irrevocable Trust, some financial institutions offer a home equity line of credit which can be used by the Trustee of the Trust. If the Grantor of the Trust reserved a life use, sometimes the financial institution will also allow the Grantor to use this line of credit.
If you already have a line of credit on your home and then you transfer the home to your Irrevocable Trust, it is possible that the financial institution will permit you to continue having this line of credit.
An Irrevocable Trust is typically used by our clients to protect their life savings in the event they require long term care in a nursing home and allow them to qualify for Medicaid coverage.
The most important requirement of an Irrevocable Trust in order to protect your life savings is that you (the Grantor) cannot have access to Trust principal.
If you can withdraw Trust principal, then the Medicaid Agency will consider the Trust to be available to you to be spent towards the cost of your care. You would be denied Medicaid coverage and the Trust would not protect your life savings.
In a Fair Hearing Decision by New York State in a case from Onondaga County, the Administrative Law Judge ruled that funds obtained by the Grantor from a home equity line of credit on the residence owned by the Irrevocable Trust violated the Trust and made the entire Trust an available resource.
The Grantor in that case argued that the funds obtained from the credit line were loans that had to be paid back and therefore not a withdrawal of Trust principal. The Judge rejected this argument and held that because the Grantor was able to personally benefit from Trust funds, the Trust should be considered available to be spent towards the cost of care. The Judge upheld the denial of Medicaid coverage.
It is not clear from this Fair Hearing Decision if the result would have been different if the withdrawn funds were used solely for capital improvements for the residence. In this case, the Grantor used the withdrawn funds for personal use.
Until a future Fair Hearing or Court case rules on this question, discussion of your options should be carefully reviewed with your attorney.
For more information about Irrevocable Trusts, please see our website by clicking here.
At the Koldin Law Center, P.C., located in East Syracuse, 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, including the advantages and disadvantages of Revocable Trusts and Irrevocable Trusts, along with other estate planning considerations including a Will, Power of Attorney, and Health Care Proxy. We do not charge a fee for the initial consultation. We welcome your children, family attorney, accountant, and/or financial planner to be present at the initial consultation.
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