Boomer Planning:  Proper Planning with Trusts (Part 1)


 Most often, a primary goal of our prospective clients is to “protect” their assets (money, property) so that such assets can be passed to their children (or other loved ones), upon the client’s passing, as efficiently and with as much value retained as possible. In helping our client reach this goal, “trusts” are often employed as extremely useful tools.

Two important questions logically follow from what is written above: (1) What exactly is it that assets need “protection” from? (2) What precisely is a “trust?”

Answers: For most of our clients, action MUST be taken to protect assets from (a) the astronomical costs of long-term care, and (b) future court proceedings related inheritance. Over 100 million Americans will unfortunately face a chronic illness at some point in their lives. Many people have the misconception that their health insurance and/or Medicare (if one is over 65) would help cover a chronic illness but this is not true. Only “acute illnesses,” or injuries / illnesses for which you may require short term rehabilitation may be covered by such insurance. 

By contrast, the only avenues available to help covering costs of in-home care or nursing home care for a chronic illness are long-term care insurance OR if financially eligible, the Medicaid program. Given that many individuals cannot afford the often high premiums for long-term care insurance, the only option remaining to help with costs associated with a chronic illness (upwards of $15,000 per month in New York City and the five boroughs for nursing home or in home care), is the Medicaid program. Keep in mind, the Medicaid program has strict financial eligibility limits. However, engaging in legal planning in advance of needing care, with properly worded trusts, can result in achieving financial eligibility for these programs.

An additional way that your assets can be depleted without proper planning is through legal fees accrued in relation to surrogate’s court proceedings that may take place upon your passing. If a person dies with assets in his or her name alone, with no joint owner or beneficiary designation, such assets (whether financial, real estate, or personal property) cannot be passed without a fiduciary being appointed by the local surrogate’s court. The process of determining the person or persons to inherit such property is known as probate (when a person dies with a Will in place), or the administration process (when no Will has been done). Wills can also be contested in court in many circumstances.

Now the key: in many circumstances, proper advance planning with Irrevocable Trusts can minimize or totally eliminate the costs described above! A Trust is a legal arrangement in which one party (the Trustee) holds and manages property for the benefit of other(s) (the Beneficiary or Beneficiaries), according to the terms of the arrangement. Different types of Trusts can be used for various purposes such as avoiding the costs and delays of probate, preserving assets in the event of a long-term illness, tax planning, supplementing public benefits, planning for disabled children, among other purposes.

Our clients frequently choose to establish Irrevocable Trusts to avoid probate, and to protect assets and real estate from the costs of in-home care and nursing home care. One of the advantages of the irrevocable trust is that upon the Grantor’s death, remaining Trust assets will be distributed directly to named beneficiaries without the costs, problems, publicity, or delays of probate/administration.

Another important advantage of the Irrevocable Trust is that assets “re-titled” in the name of one’s Irrevocable Trust will be protected from the cost of in-home care (2 1/2 years from the transfer of the assets) and the future costs of nursing home care (five years from the transfer of the assets).  Since one’s home is often his or her most valuable asset, engaging in the type of trust planning described in this article to protect the value of one’s home (as well as other assets where appropriate) is often extremely beneficial to the financial well-being of our clients and their families. Also, it should be noted that the Irrevocable Trusts are drafted to be as flexible as possible and can be amended in particular circumstances.

Please be advised that the transfer of shares in a cooperative unit to a trust, as with any such transfer, must be approved by the subject cooperative board. More and more cooperatives are allowing for trust transfers but even if your cooperative does not allow for such transfers, it is not advisable to disregard the ability to properly plan. There is an estate plan for everyone!

Look out next month in this same publication for our follow-up: Proper Planning with Trusts  - Part 2: Revocable Trusts with a focus on estate tax planning.

The contents of this article are in no way intended to be legal advice and are provided for educational and informational purposes only. Please feel free to call our office if you feel we can be of service to you in any manner.  Our attorneys at Brady & Bader LLP, Attorneys at Law can be reached at (718) 945-7777.  This article may be considered an Attorney Advertisement. Alexander Bader, Esq., is a Partner, Brady & Bader, Attorneys at Law.


By Alexander Bader, Esq.


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