As New Yorkers approach retirement age, the importance of proactive estate and Medicaid planning becomes increasingly evident. With rising long-term care costs, complex asset protection laws, and the intricacies of New York’s probate system, developing a comprehensive plan can mean the difference between preserving a legacy and seeing hard-earned assets consumed by unforeseen expenses. One of the most powerful tools in this planning is the use of irrevocable trusts—especially when it comes to transferring real estate.
The Dual Goals of Estate and Medicaid Planning
Estate planning focuses on ensuring that assets are distributed according to a person’s wishes after death, minimizing taxes, and avoiding probate where possible. Medicaid planning seeks to preserve assets while qualifying for long-term care benefits through Medicaid. Because Medicaid is a means-tested program, many middle-class retirees must take strategic action to qualify without exhausting their life savings.
In New York, where the cost of nursing home care can exceed $180,000 annually, the importance of early planning cannot be overstated. Failing to plan may force individuals to liquidate homes, retirement accounts, or other assets to pay for care, leaving little for spouses or children. Likewise, the cost of home care services continues to rise—often exceeding $10,000 to $16,000 per month depending on the level of need—early planning is critical. Without a proper strategy in place, individuals may be forced to spend down their assets, including retirement savings or even their homes, to qualify for Medicaid coverage. This can jeopardize the financial security of a well spouse or children and limit options for receiving care in the comfort of one’s own home.
Irrevocable Trusts: A Cornerstone of Asset Protection
One of the most effective strategies in estate and Medicaid planning involves transferring assets—particularly real estate—into an irrevocable trust. This is distinct from a revocable living trust, which offers probate avoidance but no protection against creditors or Medicaid spend-down rules. Therefore, while both types of trusts will avoid probate, only the irrevocable trust can protect your assets from creditors as well as help with tax planning/strategy.
Why Transfer Real Estate to an Irrevocable Trust?
- Medicaid Eligibility and the 5-Year Lookback:
Institutional Medicaid (i.e., nursing home coverage) in New York imposes a five-year “lookback” period on asset transfers. Assets placed into an irrevocable trust are considered removed from the individual’s estate after five years, meaning they are not counted when determining Medicaid eligibility. This is especially important for primary and investment properties, which otherwise might disqualify applicants or be subject to estate recovery after death.
A new 2.5 year lookback rule was enacted for community (home care) Medicaid in York, but it has not yet been implemented.
The lookback periods should prompt you to take action immediately so that the penalty period starts running. Advanced planning will therefore not only protect your assets but also help you avoid being ineligible for Medicaid.
- Protection Against Creditors and Lawsuits:
Once assets are placed into a properly drafted irrevocable trust, they are no longer considered the legal property of the individual. This can shield them from lawsuits, creditor claims, and liabilities—offering peace of mind to retirees concerned about potential legal issues. - Avoidance of Probate:
Real estate held in an irrevocable trust does not pass through probate, allowing beneficiaries to receive property more quickly and with fewer court costs. Probate in New York can be a lengthy and public process; avoiding it simplifies administration and maintains family privacy. - Preserving Property for Future Generations:
For many of us, the family home is our most valuable asset. Transferring the home into an irrevocable trust can preserve it for children or other heirs while allowing the parent(s) to continue living there. Whether or not the property is a rental home or a primary residence, strategizing is important concerning whether or not to lock the income (e.g. rental income) in the trust or pay it out to you. Either option is possible and optimal planning varies on a case by case basis. - Tax Efficiency:
With proper trust structuring, heirs can still benefit from a step-up in basis for capital gains tax purposes, minimizing taxes if they choose to sell inherited property. Further, irrevocable trusts are instrumental for wealthy individuals for purposes of estate tax planning. Income taxes may also be shifted using irrevocable trusts (so that those in lower tax brackets are maintain responsibility for income taxes generated on the trust property). Finally an irrevocable trust can even maintain crucial tax like the Senior Citizen Homeowner’s Exemption (SCHE) which lowers qualifying seniors’ real estate taxes for their primary residence by up to half (see the following NYC Department of Finance link for eligibility rules: https://www.nyc.gov/site/finance/property/landlords-sche.page)
Timing Is Everything
It’s essential to begin estate and Medicaid planning early—ideally well before the need for long-term care arises. Delays can limit available options, particularly due to Medicaid’s lookback periods. Early planning not only expands strategic possibilities but also minimizes stress for families down the line.
Working with Professionals
Because New York’s estate and Medicaid laws are uniquely complex, retirees should work with experienced elder law attorneys or estate planning professionals. A knowledgeable advisor can tailor a trust to meet a family’s specific needs—balancing access, control, and asset protection—while ensuring compliance with state and federal regulations.
For New Yorkers nearing retirement, estate and Medicaid planning is not just about legal documents—it’s about protecting a lifetime of work, maintaining dignity in aging, and ensuring loved ones are cared for in the future. Transferring real estate into an irrevocable trust can be a linchpin strategy in achieving these goals. By acting now, retirees can secure their legacy and rest easy knowing their affairs are in order.