Estate Planning With a Trust and Life Estate

The Facts: My father is planning on putting his house into an irrevocable trust and naming me as trustee. He will be naming my sister and me as beneficiaries of the trust.

The Questions: Can my father sell his house once it is in the trust? If my father goes into a nursing home, can I sell his house? Will having the house in trust increase my father’s chances of being eligible for Medicaid if the need arises?

The Answers: The answer to your first question is “NO.” Once the house has been transferred to the trust, your father no longer has control over the property and cannot sell, gift or encumber the property.

As for your second question, the answer is “YES.” As the trustee, you have the authority to the sell or otherwise transfer the house during your father’s lifetime. If you sell the house, the proceeds from the sale cannot be given to your father but should remain in the trust and used in accordance with the trust provisions. If the trust provides that the house passes to you and your sister after your father’s death, the two of you will have to decide what to do with the property at that time.

As for Medicaid eligibility, under the current laws in Suffolk County, having the house in an irrevocable trust may prove helpful providing the property was transferred into the trust at least five (5) years before your father applies for Medicaid benefits. If he applies after the five (5) year look-back period has passed, the value of the house will not be considered an available asset in the context of your father’s Medicaid application. Assuming your father receives Medicaid benefits, the fact that the house was transferred into an irrevocable trust more than five (5) years before benefits were paid precludes Social Services from seeking reimbursement from the proceeds of the sale of the house after your father’s death for any Medicaid benefits your father may receive.

If your father applies for Medicaid less than five (5) years after transferring the house into the trust, the trust will be ignored for purposes of determining your father’s available assets. However, having a house will not necessarily make your father ineligible for Medicaid provided he does not have more than $750,000 in equity in the house and the value of his other assets is below the resource threshold. The disadvantage of owning the house outright at the time he receives Medicaid benefits is that Social Services will be able to recover the benefits they paid in your father’s behalf from his estate upon his death.

Clearly, there are pros and cons to transferring the house into an irrevocable trust at this time. As such, it would be worthwhile for your father to discuss this matter with an experienced elder law attorney and/or financial/tax advisor before making a final decision about creating and funding the trust.

This article first appeared in the July 26, 2013 issue of the Times Beacon Newspapers.

Linda M. Toga of The Law Offices of Linda M. Toga, P.C. is an East Setauket,New York attorney with a general law practice focusing on estate planning, real estate, marital planning, small business services and litigation.