The Benefits of Putting a House in a Trust in New York City

Putting a house in a trust is a common estate planning strategy used by most estate planning lawyers in most states. Lawyers put houses in either a revocable or irrevocable trust, depending on the objectives the client wishes to achieve.

Revocable vs. Irrevocable Trust

A revocable trust is a trust that can be revoked, modified, or amended at any time by the grantor. An irrevocable trust, on the other hand, cannot be revoked, modified, or amended by the grantor. When property is transferred to an irrevocable trust, it cannot be returned back to the grantor without the consent of all the beneficiaries. Despite the fact that an owner loses apparent control over the property in an irrevocable trust, irrevocable trusts are still used, especially in cases of Medicaid planning.

Benefits of a Trust

Both revocable and irrevocable trust avoid probate, provide the grantor with control over the distribution, and escape guardianship proceedings for trust property in case of incapacity.

Avoids Probate

One of the primary reasons estate planning lawyers put houses in trusts is because trust property avoids probate. If the house is not in a trust, probate proceedings have to be filed before the court in order to transfer the house to the heirs or beneficiaries in the will.

If the house is in a revocable trust, probate proceedings are avoided because the house can be transferred by simply submitting to the county recorder a simple affidavit from the trustee and a copy of the death certificate of the grantor (who is usually also the trustee and beneficiary).

If the house is in an irrevocable trust, probate proceedings are avoided because the house is not considered the property of the grantor/owner anymore.

Escapes Guardianship Proceedings

When a person becomes incapacitated, the relatives usually need to initiate guardianship proceedings in order to manage the incapacitated person’s property, unless the property is under a trust or there is a durable power of attorney.

If the house is under a revocable trust, the house can be easily managed by a mere transfer of the property to the successor trustee without going through guardianship proceedings.

If house is in an irrevocable trust, the incapacity of the grantor does not affect the management of the house because the grantor is not considered the owner of the house anymore. The owner of the house is the irrevocable trust.

Control over Distribution

One of the major benefits of a trust is the control over the distribution of the property. A last will and testament only allows the executor to pay off debts and thereafter immediately distribute the remaining estate after payment of debts. A trust, on the other hand, allows for the management and administration of the property, even after the grantor’s death.

For example, a trust allows for the distribution of income of trust property to the spouse, and after the spouse’s death, the distribution of the principal to the remainder beneficiaries. The administration of a trust depends on the creativity of the grantor and his trust attorney.

In fact, a trust can remain open for at least 21 years after the death of the last beneficiary who was alive and known to the grantor at the time it was created. For this reason, many inter-generational trusts have been previously established to escape taxes.

Medicaid Benefits of an Irrevocable Trust

Estate planning attorneys also put houses in irrevocable trusts, mostly for Medicaid planning and credit protection.

Generally, a house is exempt from being counted as a person’s asset for purposes of applying for Medicaid. However, the house will not be exempt from recovery when a Medicaid recipient dies. The house will be placed on a lien, subject to reimbursement of Medicaid costs, after the Medicaid recipient’s death (save for certain exceptions).

When the house, however, is placed in an irrevocable trust before the lookback period (usually 60 months before applying for Medicaid), it is not considered as a countable asset, and at the same time, exempt from the Medicaid recovery program after the Medicaid recipient’s death. This allows the Medicaid recipient to preserve his wealth for his children.

Putting a house in a trust holds many benefits and has become a common estate planning tool for estate planning attorneys. Drafting a trust, however, requires the careful consideration of an estate planning attorney and cannot be done alone by yourself. Should you need assistance in putting your house in a trust, we at the Law Offices of Albert Goodwin are here for you. We have offices in New York City, Brooklyn, NY and Queens, NY. You can call us at 212-233-1233 or send us an email at [email protected].