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trustee(s) begin managing the trust’s affairs, and disposing of the trust assets as per your directions.
A common circumstance that is encountered in New York is the elderly decedent who owns both their long time New York residence, and a Florida condominium for their retirement years. In these circumstances, without an RLT, the family of the decedent will have to probate the decedent’s will (or, in the absence of a will, bring an administration proceeding) in both New York and Florida. After accounting for filing fees, legal fees, service of process, and the potential necessity for travel, this can more than double the cost of administering the estate. By utilizing a RLT, you can avoid these problems, save money and time for your heirs, and leave a lasting legacy for your family. Almost without exception, we advise that our clients who own real estate or other property in multiple states utilize an RLT for estate planning purposes.
Irrevocable “Medicaid” Trusts
The irrevocable “Medicaid” trust is a special type of trust utilized to protect your assets - and in some cases, make you eligible for government benefits - in the event that you require certain forms of care, while safeguarding your assets for the benefit of your heirs.
In New York State, the average cost of a nursing home is approaching $10,000.00 per month at the time of writing. In the downstate region, the cost of such care already exceeds that number by approximately 20%. As such, the cost of care quickly diminish your hard earned savings, and prevent your children from inheriting the money that they otherwise would.
Let’s utilize the example of “Rose Smith”, a fictional prospective client. Rose has pension and security income of approximately $3,000.00 per month, and owns her home outright and free of any mortgage. Her home is valued at $400,000.00, but she has few other
assets. Rose knows that she wants to live in her home until her demise, but has a history of Alzheimer’s in her family, and wants to protect her major asset (in this case, her home) so that her children will have a nest egg, and her grandchildren will be able to go to college without taking out student loans. Rose will nominate an independent trustee (a trusted relative, friend or colleague), transfer title of her home into the Rose Smith Irrevocable Trust, and reserve herself a little estate. Rose continues to live in her home, and remains eligible for the same property tax exemptions to which she was previously entitled.
Six years later, Rose requires nursing home care, and spends three years in a nursing home prior to her eventual passing. Had Rose maintained her home in her individual name rather an transferring her home to the trust, her estate would be liable to the nursing home for the cost of the care - at $10,000.00 per month for three years, $360,000.00. Her family would inherit 10% of her estate, with the nursing home taking the remainder of the funds. However, because Rose utilized proper planning, the home passes outside of her estate, and her creditors cannot collect against the house.
Upon her passing, Rose’s life estate terminates, the house may be sold by her trustee, and the full proceeds from the sale - all $400,000.00 - are distributed to her heirs as per the terms of Rose’s trust. It is important to understand that there is a statutory “look back” period which you must surpass in order for the trust’s benefits to apply to your particular circumstance. At the time of writing, the period is five years. Had Rose gone into the nursing home within that window, she would have been subject to a penalty.
As such, it is essential to plan as far in advance of any major medical ailment as possible. It is never too soon to plan properly. As the above example demonstrates, proper planning is tremendously beneficial to your loved ones, and can be the difference between leaving a substantial financial legacy to benefit your
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