Question 1

What is an irrevocable trust and how is it different from a revocable trust in New York?

Accepted Answer

An irrevocable trust is a trust that, once created and funded, generally cannot be modified, amended, or revoked by the grantor without the consent of the beneficiaries and, in some cases, court approval. This is the fundamental distinction from a revocable living trust, which can be changed or revoked by the grantor at any time during their lifetime. The permanence of an irrevocable trust is not a flaw — it is the feature that makes it valuable. Because the grantor has relinquished control and ownership of the assets in the trust, those assets are generally not included in the grantor's taxable estate for estate tax purposes, are not accessible to the grantor's creditors, and — if structured properly — are not counted as available resources for Medicaid eligibility purposes. New York courts do allow for modification of irrevocable trusts in limited circumstances through judicial modification under EPTL §7-1.9 or through the cy pres doctrine, and in some cases all beneficiaries can consent to terminate a trust under the Claflin doctrine. However, these are exceptions to the general rule of irrevocability. New York also recognizes 'decanting,' which allows a trustee with discretionary distribution authority to 'pour' the assets of one irrevocable trust into a new trust with more favorable terms — a powerful tool for modernizing older irrevocable trusts that no longer serve their original purpose. Russel Morgan advises New York clients on the full range of irrevocable trust structures and their specific applications across estate tax planning, asset protection, Medicaid planning, and special needs planning.

Question 2

What is a Medicaid asset protection trust in New York?

Accepted Answer

A Medicaid asset protection trust (MAPT) — also called an irrevocable income-only trust in New York — is an irrevocable trust designed to protect the grantor's assets from being counted as available resources for Medicaid eligibility purposes, specifically for long-term care (nursing home Medicaid). In New York, long-term care Medicaid (Community Medicaid and Nursing Home Medicaid) requires applicants to have minimal countable assets, typically $30,182 or less for an individual (2024). The family home and other assets transferred to a MAPT are removed from the grantor's countable resources — but only after the applicable look-back period expires. New York Nursing Home Medicaid has a 60-month (5-year) look-back period, meaning that transfers to the MAPT must have been made at least 60 months before the nursing home Medicaid application is filed. Community Medicaid in New York has historically had no look-back period, though this is subject to change as New York implements federal Medicaid waiver changes. The MAPT is typically structured so that the grantor retains the right to receive income from the trust assets and to live in the home if the home is transferred to the trust, but has no right to the principal — a critical distinction for Medicaid purposes. New York law and Medicaid regulations impose specific requirements on MAPT structures, and an improperly drafted MAPT can fail to achieve its intended purpose. Russel Morgan designs MAPTs for New York clients across all five boroughs and surrounding counties, coordinating with elder law planning to protect family assets from the catastrophic cost of long-term care.

Question 3

What is a supplemental needs trust in New York?

Accepted Answer

A supplemental needs trust (SNT) — also called a special needs trust — is an irrevocable trust designed to provide for the supplemental care and quality of life of a beneficiary with a disability without disqualifying the beneficiary from government benefits programs such as Medicaid and Supplemental Security Income (SSI). New York recognizes both first-party SNTs (funded with the disabled person's own assets, such as a personal injury settlement or inheritance) and third-party SNTs (funded with assets belonging to parents, grandparents, or other family members). A third-party SNT is the most common vehicle used in estate planning for parents of children with disabilities: instead of leaving assets outright to the disabled child — which would disqualify the child from Medicaid and SSI — the parent leaves assets to the supplemental needs trust, which then provides for the child's supplemental needs (such as recreation, travel, education, technology, and other quality-of-life expenditures) without affecting government benefit eligibility. Third-party SNTs are not subject to Medicaid payback requirements at the beneficiary's death, which means any remaining trust assets can pass to other family members. First-party SNTs, by contrast, are subject to a payback provision requiring that Medicaid be reimbursed for benefits paid during the beneficiary's lifetime before any residual assets pass to other beneficiaries. New York also recognizes pooled supplemental needs trusts administered by nonprofit organizations, which can be a practical option for smaller trusts. Morgan Legal Group drafts SNTs for New York families across all five boroughs and surrounding counties, ensuring that beneficiaries with disabilities receive quality legal protection without compromising their government benefits.

Question 4

What is a credit shelter trust and is it still relevant for New York estates?

Accepted Answer

A credit shelter trust — also called a bypass trust or B trust — is an irrevocable trust established at the death of the first spouse to die, funded with assets up to the applicable estate tax exemption, designed to 'shelter' those assets from estate tax at the surviving spouse's death. Traditionally, credit shelter trusts were the cornerstone of married-couple estate planning because the federal estate tax exemption could not be shared between spouses — each spouse had to use their own exemption or lose it. The introduction of federal 'portability' in 2010 (made permanent in 2013) changed the federal planning calculus by allowing a surviving spouse to inherit and use the deceased spouse's unused federal exemption through a portability election on a timely filed estate tax return. However, New York does not recognize portability for New York estate tax purposes — meaning that if the first spouse to die does not use their New York estate tax exemption, it is lost forever. For New York married couples with combined estates above the New York exemption ($6.94 million in 2024), a credit shelter trust funded with New York-exempt assets at the first death continues to be an important planning tool that saves substantial New York estate tax at the surviving spouse's death. For New York couples with combined estates above the federal exemption, the credit shelter trust remains essential for federal planning purposes as well, particularly given the potential exemption sunset after 2025. Morgan Legal Group designs credit shelter trust provisions for New York married couples as part of coordinated estate plans that address both federal and New York estate tax objectives.

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