Revocable Trust

Creating a revocable trust, also called a “living trust,” is a strategy that is frequently used for estate planning.  It is often appealing because during the Grantor’s lifetime, he or she can be the Trustee, and retain full control over the assets in the trust.  Once the Grantor passes away, any assets that remain in the revocable trust are distributed under the terms of the trust, and are not subject to probate or administration in court.

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Probate is the process of administering and distributing the assets that are in the name of a deceased person who has a Will.  The process has numerous drawbacks.  First, it is a court proceeding, so whoever is named as the Executor in the Will must petition the court and obtain a court order before he or she can act on behalf of the estate.  Heirs and potential heirs are required to be located, notified, and given a chance to object to the Will.  When there is no Will, the process is called Administration.  Administration is a similar court proceeding, where the beneficiaries are prescribed by New York law rather than by a Will.

Both processes are subject to the timing of the court and the judge, which has always been uncertain, and has become even more so since the Covid pandemic.  They are also public, so anyone can learn about the decedent’s assets and heirs.  Finally and not insignificantly, all of these steps mean that either procedure is time-consuming and costly.

For all these reasons, avoiding probate or administration is a worthwhile objective, for which the revocable trust works well.  However, a revocable trust does not work if you wish to become eligible for government benefit programs such as Medicaid.

A revocable trust can be revoked or amended at the option of the Grantor – in other words, the Grantor still has control over the assets and has the ability to withdraw any or all of the assets at any time.  The assets in such a trust are considered “resources” by Medicaid, and would be required to be used to pay for the person’s medical or disability needs.  That means that the Grantor will not be eligible for Medicaid until the assets in the revocable trust are almost completely depleted.

To become eligible for Medicaid, a Grantor will need to establish a properly structured, irrevocable trust.  This means that the Grantor is irrevocably (permanently) giving up ownership of and control over the assets.  The Trustee(s) of the trust can be the grantor’s children, for example, who could choose to pay for the Grantor’s needs – but the Grantor does not have the ability to require them to do so.

If you already have a revocable trust created for estate planning purposes, your trust should be evaluated by an Elder Law attorney. These trusts work well if the only goal is estate planning.   However, they are not asset protection trusts, and the assets held in such trusts will be counted as your own resources for Medicaid eligibility purposes.  A consultation will help you to understand whether a revocable or an irrevocable trust is the appropriate instrument to achieve your goals.  Contact us now to schedule a consultation!

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