Massachusetts Irrevocable Trust Lawyer

What is an irrevocable trust?

An irrevocable trust is a trust that, once signed and funded, generally cannot be changed or cancelled by the person who created it. You transfer property to a trustee, who holds and manages it for the beneficiaries under the terms of the trust.

That loss of control is the point. Because you no longer own the trust principal, it can be protected from things that would reach property you own, such as long-term care costs counted by MassHealth, certain creditors and, in some plans, estate tax.

Irrevocable does not mean you lose everything. A well-designed Massachusetts irrevocable trust can let you keep living in your home, receive the income from trust assets, keep certain tax benefits, and change who receives the property after your death through a limited power of appointment.

Irrevocable trust vs revocable trust

Many families use both: a revocable trust for flexibility and probate avoidance, and an irrevocable trust for the home or savings they want to protect.

Protecting your home and savings from nursing home costs

Nursing home care in Massachusetts can cost well over $10,000 a month. Medicare covers only a short stay after a hospitalization. For long-term care, families either pay privately or apply for MassHealth, the Massachusetts Medicaid program, which has strict limits on the assets an applicant can keep.

An irrevocable income-only trust is one of the most common tools for protecting a family home and savings from those costs.

How an income-only trust works

• You transfer your home, and sometimes savings or investments, to the trust.
• A trustee you choose, often an adult child, manages the property.
• You can keep the right to live in your home for life.
• You can receive the income the trust earns, such as interest or dividends, but not the principal.
• After your death, the property passes to the beneficiaries you chose, without probate.

The five-year look-back

MassHealth reviews transfers made in the 60 months before you apply for long-term care benefits. If you transfer assets to an irrevocable trust and need nursing home care within five years, the transfer can cause a period of ineligibility. After five years have passed, the assets in a properly drafted trust are generally not counted.

That is why timing matters. The best time to plan is while you are healthy, long before care is needed. Waiting until a crisis limits the options.

Can I keep living in my home?

Yes. Massachusetts courts have upheld irrevocable trusts in which the grantor keeps the right to live in the home. In Daley v. Secretary of the Executive Office of Health and Human Services (2017), the Supreme Judicial Court ruled that keeping the right to use and occupy a home held in an irrevocable trust does not, by itself, make the home countable for MassHealth. The details of the trust language still matter a great deal, and trusts are reviewed closely when an application is filed.

Estate recovery

MassHealth can seek repayment from the probate estate of certain members after their death, including members who received long-term care services at age 55 or older. Recovery is delayed while a surviving spouse, or a child under 21 or with a disability, is living. Property held in a properly structured irrevocable trust is not part of your probate estate, which can protect your home for your children.

Tax benefits of a well-drafted irrevocable trust

A common concern is that giving away a home triggers capital gains tax for the children when they sell it. A properly drafted Massachusetts irrevocable trust can avoid that problem:

• Step-up in basis. By keeping certain rights, the trust property can be included in your estate for tax purposes, so your beneficiaries receive a stepped-up basis at your death. That can eliminate capital gains tax on the growth in value during your lifetime.
• Sale of your home during your life. If the trust sells your home while you are alive, the trust can be designed so you keep the income tax exclusion on the sale of a principal residence.
• Real estate tax exemptions. Trusts can often be written so you can continue to qualify for local real estate tax abatements and exemptions you already receive.

Every plan has trade-offs. We explain the tax effects of the design we recommend before you decide.

Why not just give the house to the children?

Some families consider simply deeding the home to their children. It seems simpler, but it often creates bigger problems:

• Capital gains tax. Children who receive a home as a gift take your original tax basis. When they sell, they may owe capital gains tax on decades of growth. A properly drafted trust can preserve the step-up in basis at your death.
• Your children’s problems become yours. A home owned by your children can be reached by their creditors, lost in their divorce, or affected by their bankruptcy, while you still live there.
• Loss of security. Once your children own the home, you have no legal right to stay if family relationships change.
• The same five-year look-back. A direct gift is still a transfer for MassHealth purposes.

An irrevocable trust addresses each of these problems while still starting the five-year clock.

Other types of irrevocable trusts

Asset protection is the most common reason Massachusetts families use irrevocable trusts, but there are others.

Supplemental needs trusts

A supplemental needs trust holds property for a person with a disability without disqualifying them from SSI, MassHealth or other needs-based benefits. A third-party trust, funded by parents or grandparents, can be set up during life or through a will or revocable trust.

Irrevocable life insurance trusts

Life insurance on a policy you own counts toward your taxable estate. An irrevocable life insurance trust can own a policy so the proceeds are kept out of your estate for Massachusetts estate tax purposes, and are managed for your beneficiaries.

Gifting trusts for estate tax planning

Massachusetts taxes estates of more than $2 million, and the value of a home, retirement accounts and life insurance counts. For families above that threshold, moving assets into an irrevocable trust can reduce the size of the taxable estate.

Is an irrevocable trust right for you?

An irrevocable trust is a serious step, and it is not right for everyone. It may make sense if you:

• Are in your 60s, 70s or older, in reasonable health, and want to protect your home for your children
• Have savings you do not need for daily living and want to shield from long-term care costs
• Have a family member with a disability who needs lifelong support
• Have an estate near or above the Massachusetts estate tax threshold
• Want to make sure property passes to children from a prior relationship

It may not make sense if you need full access to your savings, expect to need long-term care within five years, or want to keep the ability to sell and spend freely. We give you a frank recommendation, and sometimes that recommendation is that a revocable trust or a simpler plan is better for you.

Choosing your trustee

Because you generally should not serve as trustee of your own asset protection trust, choosing a trustee is one of the most important decisions. Most clients choose one or more adult children or another trusted relative. The trustee must keep good records, follow the trust terms, file any required tax returns, and work with the rest of the family.

We explain the trustee’s duties in plain language, to you and to the people you choose, so everyone knows what to expect.

Funding the trust: deeds and accounts

A trust only protects the property that is transferred into it. For your home, we prepare a deed to the trustee and record it at the registry of deeds for the county where the property is located. We also review your Massachusetts homestead declaration and record a new one when needed, so homestead protection continues.

For bank and investment accounts, the trustee opens accounts in the trust’s name and the funds are transferred. Retirement accounts usually cannot be placed in an irrevocable trust during your life without taxable withdrawals, so we plan for them separately.

A complete plan

An irrevocable trust works best as part of a full estate plan, which usually includes:

• A will or revocable trust for property outside the irrevocable trust
• A durable power of attorney with authority for MassHealth planning
• A health care proxy and living will
• A HIPAA authorization

How we work with you

• Free consultation. We review your family, your property, your health and your goals, in English, Portuguese or Spanish, and tell you the cost before you decide.
• Honest recommendation. We explain whether an irrevocable trust fits your situation, and what you give up and gain.
• Drafting and review. We prepare the trust and related documents, and go through them with you and your trustee.
• Signing and deeds. You sign in our office, and we prepare and record the deed to your home.
• Ongoing help. We help your trustee with questions, and we are here if a MassHealth application is needed later.

Frequently asked questions

Can I put my house in an irrevocable trust and still live there?

Yes. Massachusetts irrevocable trusts commonly let you keep the right to live in your home for life, and the Supreme Judicial Court has upheld that arrangement.

How long before MassHealth stops counting the house?

MassHealth looks back 60 months from your application. Transfers to an irrevocable trust made more than five years before you apply are generally not counted.

Can I be the trustee of my irrevocable trust?

For asset protection trusts, you generally should not be the trustee. Most clients name an adult child or another trusted person.

Can an irrevocable trust ever be changed?

The trust itself is generally not changed by you, but trusts can include tools, such as a limited power of appointment, that let you change who receives the property after your death. In some cases the trust terms can be adjusted with the help of the trustee, beneficiaries or the court.

Will my children pay capital gains tax when they sell the house?

With proper drafting, the home receives a stepped-up basis at your death, which can eliminate capital gains tax on the increase in value during your lifetime.

Can you explain the trust in Portuguese or Spanish?

Yes. Our team includes fluent Portuguese-speaking and Spanish-speaking staff who work with Attorney Botelho, so you and your family can understand every part of the plan.