An irrevocable trust is one of the most powerful tools in New York estate planning. Properly drafted and funded, it can shield assets from creditors, reduce estate tax exposure, qualify a person for Medicaid long-term care benefits, and pass wealth to the next generation on the grantor’s terms. Because it generally cannot be changed once signed, the stakes for getting it right are high. We design, fund and administer irrevocable trusts for individuals, families and business owners, and we advise the trustees and beneficiaries who live with them afterward.
What Is an Irrevocable Trust Under New York Law?
In an irrevocable trust the grantor transfers ownership of assets to a trustee, who manages them for named beneficiaries. Unlike a revocable living trust, an irrevocable trust generally cannot be amended, modified or revoked once it is signed and funded, except in the limited circumstances that the Estates, Powers and Trusts Law and the Surrogate’s Court Procedure Act allow.
Because the grantor gives up control of the transferred property, the assets are no longer part of the grantor’s estate for many legal and tax purposes. That separation is precisely what makes the trust effective for asset protection, tax planning and benefits eligibility.
What an Irrevocable Trust Can Do
New Yorkers face a state estate tax with a “cliff” that sharply increases the tax for estates exceeding the exemption, some of the highest long-term care costs in the country, and a complex regulatory environment for larger estates. The trust addresses each of these in a different way.
| Goal | How the trust achieves it |
|---|---|
| Estate tax reduction | Assets held in the trust are typically excluded from the grantor’s taxable estate, reducing or avoiding New York and federal estate tax. |
| Medicaid planning | A Medicaid Asset Protection Trust can preserve a home and savings while the grantor qualifies for Medicaid-funded nursing home or community-based care after the look-back period. |
| Asset protection | Trust assets are generally shielded from future creditors, lawsuits and divorce claims against the grantor or the beneficiaries. |
| Probate avoidance | Trust property passes outside Surrogate’s Court, with privacy and faster distribution. |
| Special needs planning | A supplemental needs trust supports a disabled beneficiary without disqualifying them from SSI, Medicaid or other means-tested benefits. |
| Legacy planning | The trust preserves wealth across generations and directs how funds are used for education, business or charity. |
Common Types of Irrevocable Trusts
There is no single irrevocable trust. The structure depends on the assets, the family and the objective.
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Medicaid Asset Protection Trust (MAPT)
The grantor transfers the home, savings or investment property into trust while keeping the right to live in the home and to receive the trust income. After New York’s five-year look-back for institutional Medicaid (a 30-month look-back for community-based long-term care was enacted in 2020 but, as of 2026, has not been implemented), the assets are not counted for eligibility. Our Medicaid trust page explains the mechanics.
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Irrevocable Life Insurance Trust (ILIT)
The trust owns a life insurance policy on the grantor’s life so that the death benefit is excluded from the taxable estate. This matters for New York residents whose estates exceed the state exemption, $7.35 million for deaths in 2026, indexed annually.
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Grantor Retained Annuity Trust (GRAT)
The grantor transfers appreciating assets to beneficiaries with minimal gift tax by retaining an annuity for a fixed term. GRATs are most effective when interest rates are low.
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Spousal Lifetime Access Trust (SLAT)
One spouse moves assets out of the taxable estate while the other spouse keeps access to trust income or principal during life, combining tax savings with financial security.
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Charitable remainder and charitable lead trusts
These pair philanthropy with tax efficiency, paying income to either the donor or a charity for a term of years before the remainder passes to the other. See our charitable remainder trust page.
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Supplemental (special) needs trust
Authorized by EPTL § 7-1.12, this trust protects an inheritance for a disabled beneficiary while preserving government benefits. See our supplemental needs trust page.
Can an Irrevocable Trust Be Changed?
“Irrevocable” is less absolute than it sounds. EPTL § 7-1.9 allows revocation or amendment with the written, acknowledged consent of everyone beneficially interested in the trust. Decanting under EPTL § 10-6.6 lets a trustee with discretionary distribution authority pour the assets into a new trust with updated terms. The Surrogate’s Court may modify or terminate a trust in limited circumstances, such as when its purpose has become impossible or impractical, and where every person beneficially interested consents in writing, a lifetime trust can be amended or revoked under EPTL 7-1.9 to resolve administration issues without court involvement. Each route has strict requirements and potential tax consequences.
Choosing the Trustee
The trustee is the linchpin. Under New York law a trustee owes the beneficiaries duties of loyalty, prudence, impartiality and accounting. The wrong trustee, or one without the time or experience to administer the trust properly, produces litigation, tax penalties and family conflict. We help clients weigh individual trustees, corporate trustees and co-trustee arrangements, and we draft the provisions for trustee removal, succession and compensation that make the arrangement workable later.
The Self-Settled Trust Rule: EPTL § 7-3.1
New York limits how far a person can use an irrevocable trust to shield their own assets. Under EPTL § 7-3.1, a disposition in trust for the use of the creator is void as against the creator’s existing and subsequent creditors. A grantor therefore cannot create a self-settled spendthrift trust in New York, keep access to the principal, and expect the principal to be protected. Effective protection requires giving up any right to receive principal, which is exactly how a properly drafted income-only Medicaid Asset Protection Trust is built.
Timing matters as well. Transfers made to evade an existing or reasonably anticipated claim can be unwound as fraudulent conveyances, so this planning works when it is done well before any liability arises. Professionals with high liability exposure, such as physicians, often combine an irrevocable trust with insurance and entity planning for layered protection.
Protecting the Family Home
When a home goes into an income-only irrevocable trust for Medicaid planning, the grantor usually keeps the right to the trust income and the right to live in the home for life, and the children are named as remainder beneficiaries. Structured this way, the grantor can often keep the STAR and senior citizen property tax exemptions. The grantor must not have access to principal; if the trust permits principal distributions to the grantor, Medicaid will count the assets.
Putting the home in trust, rather than deeding it outright to the children, has three further advantages. The home can still receive a stepped-up cost basis at the grantor’s death, which reduces or eliminates capital gains tax when the children eventually sell. While in trust, the home is shielded from a child’s divorce, lawsuits or creditors. And it avoids Medicaid estate recovery: even when the home is an exempt resource for eligibility, it is not automatically protected from recovery after death. New York currently pursues recovery against the probate estate, so a home held in a trust that passes outside probate is a key strategy for avoiding it. Because recovery rules change, current policy should be confirmed at the time of planning. We cover this on our Medicaid estate recovery page.
How an Irrevocable Trust Is Taxed
An irrevocable trust is a separate legal entity and in many cases obtains its own federal Employer Identification Number and files its own fiduciary income tax returns. Many planning trusts, including most income-only Medicaid trusts, are nonetheless drafted as “grantor trusts” under the Internal Revenue Code, so that the trust’s income is taxed to the grantor personally rather than at the compressed trust rates. Whether a trust should be a grantor trust or a non-grantor trust affects income tax rates, basis planning and reporting, and it is a decision we make during drafting rather than afterward.
How We Work
Drafting is only the first step. We begin with an analysis of your finances and family to decide whether an irrevocable trust is appropriate at all. If it is, we draft the agreement around New York law and your objectives, fund the trust properly through deed transfers, account retitling and policy assignments, prepare the federal gift tax return (Form 709) in coordination with your CPA, and integrate the trust with your will, power of attorney and health care proxy. Afterward we guide trustees on their duties, accountings and distributions, and we represent parties in Surrogate’s Court when a trust needs to be modified, settled or defended.
If you are considering a trust to protect your home from nursing home costs, reduce New York estate tax, provide for a child with special needs or build a multigenerational legacy, call 212-233-1233 or email [email protected].
