Review Estate Plan in View of New State Regulations

By: Sanford R. Altman, Esq., retired

Published: 12/11/11

As those of you who have been following this column are aware, New York state has just enhanced its ability to seize property from your estate to pay itself back for funds the state expended on you for Medicaid.

These new regulations have sparked outrage from senior groups as well as their children, who justifiably expected to inherit from their parents. The regulations have also prompted letters, calls and petitions to state legislators as well as at least one letter of opposition to the governor signed by 15 state legislators, including Sens. Larkin and Bonacic. Challenges in the courts are also expected.

While we are waiting for our public officials to come to their senses and stop beating up seniors as a quick fix for budget woes, it is important for us to look at our own estate plans and elder law plans to reduce the impact of the new regulations on our families.

Irrevocable trust

An irrevocable trust is an entity that owns your property and is managed by someone else, perhaps a trusted family member. Traditionally, property placed in an irrevocable trust was deemed to be “protected” in the sense that it was not counted by Medicaid after five years from the date the trust was created and funded. In addition, you could continue to receive the income generated by the funds in the trust and, upon your death, the assets in your trust would go directly to your beneficiaries.

While generally pricier than other planning alternatives (unless it is included in an “elder law planning package”), the irrevocable trust has received somewhat preferred treatment from the new regulations, so it may well be worth doing. The advantage of an irrevocable trust under the new regulations is that there is only a very small amount that is available from the trust for Medicaid to take upon your death. If you are receiving the income from the trust and it is still owed to you in the month that you die, that portion is available to pay back Medicaid. The rest of the assets in the trust can still go to your family.

A month’s worth of income, especially at today’s interest rates, is relatively minor. However, if you already have a trust, your trustee would be well advised to consider changing investments to those that yield less interest if you are on Medicaid. In addition, your attorney can take steps to alter the terms of the trust.

In the event that you are considering or currently having an irrevocable trust drafted for you, the provisions of the new regulations must be taken into account. Although irrevocable, the documents should contain as much authority as possible to alter terms of the trust without your losing the protection that the trust is designed to provide.

No minors as beneficiaries

One of the primary methods of amending or terminating an irrevocable trust is to obtain the agreement of all beneficiaries. In order to keep this method intact, it is important to avoid having minors such as grandchildren as beneficiaries, since they are legally incapable of consenting to change. Finally, remember that placing your assets in an irrevocable trust is deemed to be a gift, and there is a five-year period which must pass in order to obtain Medicaid without penalty. Unless entry into a nursing home is likely to be less than five years away, a carefully drafted irrevocable trust appears to be your best choice under the new regulations.

Home is vulnerable

Homes where you have reserved a life estate are at the other end of the spectrum. Under the new regulations, the state can take a substantial percentage of the value of your home, make it difficult to sell and keep your children from inheriting and living in your home. This is also the provision that has seniors most upset, since your family may still lose a portion of the value of your home, which you had always believed was safe.

I’ll address strategies for protecting your home and other assets such as joint accounts in an upcoming column.

Meanwhile, keep up the good work by demanding that your state legislators get onboard with repeal of the expanded estate recovery regulations.