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By Dan Rose,
Most people think of trusts as tools for the very wealthy, something reserved for families with sprawling investment portfolios and vacation homes. In New York, that assumption misses the point entirely. An irrevocable trust is one of the most effective instruments available for protecting a family home from long-term care costs, reducing exposure to estate taxes, and preserving wealth across generations. If you’re a homeowner in the five boroughs or anywhere in New York State, the case for understanding irrevocable trusts is stronger than you might expect.
How Irrevocable Trusts Shield Assets from Long-Term Care Costs
The cost of nursing home care in New York is staggering. Many families don’t realize just how quickly those bills can consume a lifetime of savings until they’re already in crisis. Medicaid will cover nursing home care for individuals who qualify financially, but qualification requires meeting strict asset limits. In 2025, a single applicant for nursing home Medicaid in New York can hold no more than roughly $32,000 in countable resources. That number forces most families into painful choices unless they’ve planned ahead.
An irrevocable Medicaid Asset Protection Trust removes property from your countable estate. Once funded, the trust legally owns those assets, not you. Medicaid cannot count them when evaluating your application. But timing matters enormously. New York enforces a sixty-month look-back period for nursing home Medicaid, meaning any transfers made within five years of your application can trigger a penalty period during which you’ll pay out of pocket.
I tell every client the same thing. The best time to set up a Medicaid trust was five years ago. The second-best time is now.
- Asset Removal: Property transferred to an irrevocable trust falls outside Medicaid’s asset calculation once the five-year look-back window closes.
- Home Protection: Placing your primary residence in a Medicaid Asset Protection Trust can prevent a forced sale to cover nursing home costs while preserving your right to continue living there.
- Income Flexibility: A properly drafted irrevocable trust can still allow the grantor to receive income generated by trust assets, even though the principal itself remains protected.
New York’s Estate Tax Cliff and the Case for Early Planning
New York’s estate tax creates a problem that catches families off guard. The state exemption is $7.16 million for 2025, increasing to $7.35 million in 2026. That sounds like a generous threshold until you understand the cliff. If your estate exceeds the exemption by more than five percent, New York taxes the entire estate, not just the amount over the line. For an estate worth $8 million, that cliff turns what would otherwise be a modest tax bill into something far more punishing.
An irrevocable trust can pull assets below that threshold. By transferring property into the trust during your lifetime, you reduce the size of your taxable estate. Married couples can pair irrevocable trust planning with credit shelter trusts to preserve both spouses’ exemptions, a step that matters in New York because the state does not allow portability of the unused exemption between spouses.
The federal estate tax exemption now stands at $15 million per person for 2026 after Congress made the higher amount permanent. But New York’s much lower exemption means state-level planning remains critical for a far larger number of families than federal rules alone would suggest.
- Cliff Avoidance: Strategic transfers into an irrevocable trust can keep your estate below the 105% threshold that triggers taxation on the full value.
- Spousal Planning: Because New York lacks exemption portability, married couples benefit from irrevocable trust strategies that protect assets and reduce estate tax exposure in New York to fully use both partners’ exemptions.
- Gift Timing: New York does not impose its own gift tax, but gifts made within three years of death get added back into the estate for tax purposes, so early action is essential.
What Families Need to Know Before Setting Up an Irrevocable Trust
An irrevocable trust is not something to enter into casually. Once you transfer assets, you give up direct control. You cannot amend the trust, dissolve it, or take the property back. That trade-off is exactly what makes it effective for Medicaid and tax purposes, but it also means you need to be confident in the structure before signing.
Choosing the right trustee is one of the most consequential decisions in the process. The trustee manages the assets, makes distribution decisions, and files any required tax returns. Many families appoint an adult child, though some prefer a professional trustee for objectivity. I always emphasize that the trustee carries real fiduciary obligations under New York law, and picking someone simply because they’re the oldest child is not always the wisest move.
Funding the trust is equally important, and it’s where I see the most mistakes. Signing the trust document is only half the job. Every asset you want protected must be formally retitled into the trust’s name. Real estate requires a new deed and bank accounts need new signature cards. If you skip this step, the asset stays in your personal estate and goes through probate, regardless of what the trust document says.
- Trustee Selection: Appoint someone you trust completely with fiduciary responsibility, and consider naming a backup trustee in case the first choice becomes unable to serve.
- Formal Funding: Every asset must be retitled in the trust’s name through proper legal instruments. Listing assets in the trust agreement alone is not sufficient under New York law.
- Professional Guidance: Because irrevocable trusts interact with Medicaid rules, estate tax provisions, and property law simultaneously, working with an experienced wills and trusts attorney prevents costly structural errors.
Contributed by Dan Rose, A Senior Local Business Guide Specializing in New York Trusts and Medicaid Planning.
Is an Irrevocable Trust the Right Move for Your Family?
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