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By John M. Bigler This month I will once again focus on the irrevocable asset management trust. This time however, I am doing it because recently there have been several fair hearing decisions by the New York State Department of Social Services that give cause for concern to elder law attorneys and the seniors they represent.
However, the income generated by any principal in the trust still goes to the grantor and the grantor can typically determine how the principal should be held. There are two particular powers that the grantor retains in the trust that have always been comforting for the grantor but are now being challenged by the Department of Social Services. The first, is the right of the grantor to replace the trustee during the grantor's lifetime. This means, in effect, that should the trustee take any actions regarding the principal with which the grantor does not agree, then the grantor can simply replace that person.
The grantor can then advise the trustee as to how to invest the excess resources from the sale of the original home. Unlike with a life estate where both the grantor and those people to whom the home is transferred would all have to agree on selling the home, if the home was in a trust, the grantor may simply direct the trustee as to what to do and would not have to seek permission of the beneficiary of the trust. A second control of the grantor over the trust is what is called a power of appointment. This allows the grantor to change the identity of beneficiaries or the percentage of inheritance that that beneficiary would receive. In order to do this, the grantor simply has to make a will specifically referring to the trust and indicating that the beneficiaries are being changed. Once again, this power is a very effective tool for the grantor to keep control over the trust. Recently, however, the New York City Human Resources Administration has denied several applications for Medicaid when a trust had been set up. The city reasoned that although the trust is irrevocable, it can be revoked in a situation where all of the people involved agree to revoke the trust. They argue that a grantor could coerce beneficiaries to agree to a revocation of the trust by threatening to replace the trustee and/or change the beneficiary. Therefore, the assets are still an available resource to the grantor. These denials of the benefits were appealed and went to New York State Department of Social Services Fair Hearings. At the hearings, the state affirmed the city's position and found that assets in the trust were considered and available resource. These decisions have not been appealed to the court and so it's impossible to say at this point whether this is a future trend. While a trust has always been an effective way to protect assets and keep control, it may be that keeping too much control is not a wise idea. Certainly, seniors should now consider whether they need to retain the right to both replace the trustee and change beneficiaries. Possibly, to be safe, an individual may determine to retain one or other of these powers, but not both. Although most elder law attorneys remain confident that the courts will strike down these rulings as being incorrect, there's some concern. Those who have transferred assets into a trust and have waited out a period of ineligibility, may suddenly find that the Department of Social Services is claiming that the period of ineligibility never started because the assets were never actually transferred. I feel that the state is being shortsighted in its attack on trusts. As in the past, when the look-back period for trusts was extended to 60 months as opposed to 36 months for straight transfers, the state is encouraging people to make outright gifts and thereby give up control. They don't seem to realize the benefit of the trust to the state. Elder law attorneys have argued for some time that trusts are actually a benefit for the state and actually save the stat some money but once again, the trust appears to be an easy target. As is always my advice, before creating an irrevocable asset management trust, make sure that you seek expert advice and determine whether the trust is the best vehicle for you as opposed to simply retaining assets or making and outright transfer. Reprinted with permission of the Suffolk Times © 1999 [ Contact Us ] [ Guestbook ] [ Email ]  The Law Offices of John M. Bigler, Attorney At Law 1421 Wantagh Avenue, Wantagh, New York 11793-2206 1-888-ELDER-LAW · 516-409-6565 · Fax: 516-409-6522 E-Mail: info@biglerlaw.com · Web Site: www.biglerlaw.com |
The irrevocable trust is an excellent way to protect assets from being considered available to pay medical expenses by the Department of Social Services while avoiding an outright gift to family members and thereby giving up complete control. As we have discussed previously, the trust has many advantages, one of which is allowing the grantor to maintain control over the assets in the trust, even though the trustee does not have the right to invade the principal of the trust on behalf of the grantor.
In effect, this means that the grantor can determine how the assets should be held. For example, if the grantor places his or her home in the trust, at some point that person may determine that that home should be sold. The grantor may direct the trustee to sell the home which may now possibly be too large for the grantor and to purchase a smaller residence such as a condo.