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Transferring to Children versus to an Irrevocable Trust

This edition of the Koldin Law Center E-Newsletter is part of a series about frequently asked questions comparing legal documents, legal roles, and government benefits.

All prior newsletters are saved on our website. You can read them by clicking here.

We receive many questions from clients and readers of our newsletter asking about the differences between various legal documents, legal roles, and government benefits.  In this newsletter we compare transferring your assets to your children versus transferring to an Irrevocable Trust.

In the previous newsletter in this series we compared the difference between a Revocable Trust and an Irrevocable Trust.

The major difference between a Revocable Trust and an Irrevocable Trust is that a Revocable Trust does not protect your life savings.

An Irrevocable Trust that is properly prepared will protect your life savings from the costs of long term care and not be required to be spent before qualifying for Medicaid.

All transfers to children and to Irrevocable Trusts are subject to the Medicaid 5 year transfer lookback period and transfer penalty periods of ineligibility.

Will My Assets Be Protected From Medicaid?

Transfer to Children: Yes

Transfer to Irrevocable Trust: Yes

What are the Risks and Possible Pitfalls to Transferring to Children?

  • Transferring to your child could make you uncomfortable and feel like you have lost control
  • Gift tax consequences
  • Transfers can increase your child’s income tax liability
  • Transferring assets could affect your grandchildren’s financial aid for college
  • Child could get divorced and your savings could be subject to claims by the child’s spouse
  • Child could file for bankruptcy and your savings could be subject to child’s creditors
  • Child could be sued and your assets could be lost to the person suing your child
  • Child dies before you and your savings could pass to someone else in your child’s will
  • Child could become ill and need long-term care and your life savings might have to be spent on your child’s nursing home bills
  • Gifting real estate or highly appreciated investments could result in a large capital gain upon the subsequent sale

Does an Irrevocable Trust Avoid these Gifting Pitfalls? 

Many of the disadvantages outlined above can be avoided if you transfer your home and some of your life savings to a specially designed Irrevocable Trust.

Also, many people have the misconception that gifting to a child keeps you in control, but setting up an Irrevocable Trust causes you to lose control.  In fact, the opposite is true.

Once you make a gift to your child, he/she now owns that asset and has full control over it.

You can name your child or children as Trustees and beneficiaries of your Irrevocable Trust.  You retain control to change the beneficiaries and thus indirectly maintain very important control over your Trust.

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
  • Will allow you to maintain your STAR and Veteran exemption on your home when transferred to your Trust

For a discussion of Revocable and Irrevocable Trusts, please visit 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.

The Koldin Law Center, P.C. limits its practice to the specific field of Elder Law which includes estate planning and Medicaid law.

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.

When the Koldin Law Center, P.C. handles a Medicaid case, we not only handle the entire application process, but we also review asset protection options with our clients. We review with our clients who are already in a Nursing Home options to protect some or all of their assets beyond merely establishing Medicaid eligibility.

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.

There is something you can do.

Our Attorneys are available to speak to your organization

Our Attorneys speak to groups throughout New York State as a public service. If you would like to arrange for one of our Attorneys to speak to your group, please contact our office.

We Appreciate Your Referrals

We have been told by many clients who are in a crisis that they wish they had known about our firm much sooner. We are proud of the many families we have helped in times of crisis.

We are also proud of the many families we helped avoid financial crisis by doing estate planning in advance.

We all share the responsibility for making our family and friends aware of the planning options available to them.

Your referral to the Koldin Law Center could make a major difference in the lives of your family and friends if they are someday faced with a long term illness.

Remember that the Koldin Law Center offers many services for clients of all ages. Our services range from basic estate planning such as a simple will to complex estate planning including asset preservation planning.


E - Newsletter

Practice Areas

Basic Estate Planning

Trust Planning

Medicaid Planning And MedicaidApplications

Planning For Individuals With Disabilities

Probate And EstateAdministration