A trust is a separate legal entity for holding and investing property. One or more persons (the “trustee or trustees”) holds property for the benefit of another person (the “beneficiary”) or persons (“beneficiaries”). The “grantor” establishes the trust. The “grantor” or “donor” is the person who funds the trust. The “trustee” is responsible for managing the trust, and must use due diligence in protecting, investing and distributing the trust’s assets.
BENEFITS OF ESTABLISHING A TRUST
Depending on your personal financial situation, there may be advantages to establishing a trust. The most common reason our clients engage in trust planning is to protect their assets if means tested government benefits are needed. If the trust that you establish terminates upon the death of the donor, property that is in the trust at the time of the grantor’s death will pass to the beneficiary(ies) by the terms of the trust without requiring probate. This generally saves time and money for the beneficiaries. A probate proceeding might result in a will contest by a disgruntled heir, and the statutory requirements of probate mandate that all interested parties be cited. Certain trusts can also result in tax advantages both for the donor and the beneficiary. Trusts may be used to protect property from creditors, to help the grantor qualify for Medicaid, or simply to provide for someone else to manage and invest the trust property for the grantor and or the named beneficiaries. Contrasted with wills, trusts are private documents and only those with a direct interest in the trust are required to know of the trust terms, assets and distributions. However, trusts are not for everyone, and there are costs involved in setting them up. Together with an elder law attorney, you should evaluate if the costs outweigh the benefits for your specific planning needs. Don’t be pushed into establishing a trust without knowing all of the costs that are involved, as well as the tax implications and the alternatives.
TYPES OF TRUSTS
Revocable Trusts: A revocable trust, often referred to as a “living” or “inter vivos” trust, is created during the grantor’s life. The grantor may maintain control over the trust and may amend, revoke, or terminate the trust at any time prior to death, depending upon the terms of the trust. The assets in a revocable trust are countable to the grantor for purposes of determining Medicaid eligibility.
Irrevocable Trusts: An irrevocable inter vivos trust is created during the life of the grantor. The grantor does not retain the right to amend, revoke or terminate the trust after it is established. Property titled into the trust may only be distributed by the trustee as provided for in the trust instrument itself. The donor can provide that he or she will or will not receive principal distributions and or income earned on the trust property. Depending on the terms of the trust, the assets placed in the irrevocable trust may or may not be considered available for Medicaid purposes. Irrevocable trusts, where the donor retains the right to income only, and not to principal, also known as a “Medicaid Income Only Trust” is a popular tool for Medicaid planning. Many clients use this type of trust to protect their primary residence, second home, and or other assets, while qualifying for public benefits, if needed, in the future.
Testamentary Trust: A testamentary trust is a trust created under a will. This trust has no power or effect until the will is probated after the death of the Testator. A testamentary trust will not avoid the need for probate and will become a public document. Common uses for establishing a testamentary trust are for tax planning purposes, to provide a portion of the funds for the surviving spouse in a form that will not be considered available should he/she seek Medicaid eligibility to pay for long-term care, to provide for a child or other beneficiary upon your death in a controlled manner without leaving the assets outright, to provide for minors, to provide for persons with special needs, and to protect your beneficiaries and shelter them from spousal and creditor claims.
Supplemental Needs Trust: A supplemental needs trust (SNT), also known as a special needs trust, is a type of trust used to “supplement” the care and needs of a disabled person on means-tested government benefits. It can be created by the donor during life or be created as part of a will. Its purpose is to supplement, not supplant, benefits that the beneficiary is eligible to receive. Provided that the statutory requirements to establish an SNT are satisfied, and depending on the timing of the transfer to the SNT, the assets transferred to an SNT will not be treated as an available resource for public benefit eligibility purposes. Basically, the money in the SNT becomes invisible to government benefit programs. The SNT is commonly used in NY for both Medicaid and SSI program recipients to provide funds to pay for the things that Medicaid and SSI do not cover.
There are three common types of SNT’s: self-settled using the beneficiary’s own money; third-party using other people’s money; and pooled income, using the beneficiary’s monthly surplus income.
For a self-settled SNT, the person must be under 65 years, the trust must be established by a parent, grandparent, legal guardian, or court, the person must be disabled, and there must be a pay-back provision to Medicaid at the death of the beneficiary from any funds remaining in the SNT at the termination of the trust for all Medicaid benefits paid during the beneficiary's lifetime.
A third-party SNT has no age limit for the beneficiary, no pay-back provision to Medicaid, and at death, the funds remaining in the SNT can be directed to another person(s).
The SNT can spend the trust money on anything not covered by the Medicaid program. Common uses include additional home care services not provided by Medicaid, entertainment, travel, technology, utilities, furnishings, an automobile, a home, or other luxury items. No cash can be given to the SNT beneficiary at any time. If the SNT beneficiary is on SSI, payment for shelter will reduce the SSI Benefit by up to one third. There is no reduction for Medicaid benefits.
The Pooled Income Trust is a first-party special needs trust available to disabled persons of all ages. It is often the best way for elderly recipients receiving means-tested public benefits to avoid losing their “surplus income”, the amount above the Medicaid limit ($884.00 in 2021 plus a $20.00 disregard depending on the county), to Medicaid.
There are numerous nonprofit organizations in New York State which have pooled income trusts. By establishing a pooled income trust, you create a vehicle for sheltering your surplus income for your use and benefit, often enabling you to remain in the community. The pooled income trust, once established, allows you to deposit your surplus income into a separate trust account maintained for you and not have those funds considered available to you by Medicaid. Money comes out to cover anything not covered by Medicaid, thus, your surplus income can be used for your needs rather than going to Medicaid as a spend down.
There are several aspects to the pooled trust you must consider before seeking to establish one. At your death, all remaining funds in your account will go to the nonprofit charity running the trust and not to your beneficiaries. There are strict requirements and rules in the set up and approval of the trust as well as in the payment of the bills you present. All payments from the trust must be for your sole use and benefit; you can not gift with trust assets and income. You must submit bills to the pooled trust to be paid which must be approved; there can be no request for cash. There are monthly and or annual fees incurred. Also, use of the pooled trust may lengthen the Medicaid approval process as a separate review of the trust is done by Medicaid.
If you have questions or want to review or establish a trust contact Fern J. Finkel or Julie Stoil Fernandez at Finkel & Fernandez, LLP 16 Court Street, Suite 1007, Brooklyn, New York 11241, 347-296-8200 (telephone), 718-965-3185 (fax), firstname.lastname@example.org, email@example.com.
*Disclaimer: The information contained on this website is provided only as general information and is not intended as legal advice, nor should it be used as a substitute for a complete review of your case by an experienced elder law attorney. All situations differ. By visiting this website, there is no attorney-client relationship established between you and Fern J. Finkel, Julie Stoil Fernandez, or Finkel & Fernandez, LLP.