Act Two - YOUR GUIDE TO RETIREMENT PLANNING AND LIVING
by Karen E. Klein with expert Paul Hyl, Esq.
The Problem: Ten years ago, my now-84-year-old mom placed her house into an irrevocable trust, naming my brother and I the trustees. I don’t think she should live alone anymore. Can she sell the house or make changes to the trust before she dies? What was the purpose of making the trust irrevocable?
The Expert: Paul Hyl, Elder law and estate planning attorney, Cona Elder Law, Melville.
The Rules: Irrevocable trusts cannot be changed or amended, but they provide asset and Medicaid protection that revocable trusts do not. The terms of the trust govern the ability of the trustees to sell a house owned by a trust.
The Strategy: Although your mother’s house is an irrevocable trust, it probably can be sold. A typical trust would allow the house to be sold but require the sale proceeds to remain in the trust and continue to be protected.
How it Works: By establishing the irrevocable trust and transferring ownership of her house to it, your mother protected her home for Medicaid purposes once the look-back period (which is currently five years) passed. For asset protection and Medicaid planning purposes, a trust may be irrevocable and your mother must not have any access to the principal of the trust. In other words, your mother had to relinquish some control over the house and other assets to protect them. The trust may have contained the equivalent of a life estate so that your mother would have the right to live in house during her lifetime. If the trust were revocable or if your mother had the ability to sell the house and receive the sale proceeds, the house would not be protected for Medicaid purposes.
The Results: Look into the details of your mother’s trust. The terms should state whether you and your brother, as trustees, can sell the house and what happens to the proceeds. Keep in mind that there will be capital gains tax issues if the house is sold.