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A trust is established by people looking to maintain control of their assets while avoiding the probate process, which is the process by which a family takes the decedent’s will to court. As part of probate, the court reviews the estate and then gives authority to distribute the decedent’s assets.
With a revocable trust, you put your assets into the trust. You can be the trustee in your lifetime while you are competent. You name successors who, during your incapacity or passing, will step up as trustees. Upon your passing the trust will dictate how your assets will be distributed. The trust may specify something such as, “During my lifetime, I can spend everything on myself, and upon my passing I want my children (or specific charity/ies) to receive it.” It is similar to having will language in the trust, and it allows you to disperse assets however you want.
When you set up an irrevocable trust, traditionally you are not the trustee of your own trust. In most instances, you are giving up control of something. Many of our clients put assets such as a house in an irrevocable trust. The trust may say you have a right to live in the home and it cannot be sold without your permission, but once the home is sold, with your permission, then you do not have access to the cash from the sale. This cash is not used by you or paid out to you. The cash can purchase a new home for you to live in, but any excess cash would not be available to you directly.
Most commonly, people create irrevocable trusts in New York when they are doing advanced planning for long-term care costs—because if you do not have access to the money, Medicaid also does not have access to it. This is subject to a five-year rule stating that if someone needs a nursing home within five years of putting an asset in a trust, that would create a penalty. But once you are beyond the five years, that asset will no longer be available for Medicaid to help defray your long-term care costs.
An irrevocable trust has language similar to a revocable trust. For example, “Upon my passing, these are the people I want to receive my money and assets in the trust.” I think the biggest difference between the two is that with a revocable trust, you have full use and control of the assets. With an irrevocable trust, you have very limited use and control. In irrevocable trusts, this is done on purpose to distance you from the assets so that you can do advanced planning for long-term care costs.
Deanna M. Eble
Russo Law Group, P.C.
100 Quentin Roosevelt Blvd., Suite 102
Garden City, NY 11530