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Planning With Trusts

Planning With Trusts with MacCormack Law of Boston, MA

In addition to the basic estate planning documents, the typical planning involves the drafting of an irrevocable Medicaid income only trust which is usually funded with the primary residence.  It may also be funded with an investment account. The income would be payable to you during your lifetime. Upon your death the principal is paid to your heirs. The principal in such trust is not considered a "countable asset" for Medicaid purposes. The assets transferred to the trust will be protected from the cost of a nursing home five years from the date of the transfer to the trust.

The trust is drafted to be "grantor trust", which means that you are considered the owner for income tax purposes. The real estate taxes would still be deducted on your personal income tax returns. The income generated from the investment account will also be reported on your personal tax returns. The grantor trust status will enable you to utilize the capital gains tax exclusion if you sell your primary residence. The trust is also drafted so that the grantor retains a special testamentary power of appointment. This will prevent the need to file a gift tax return when the trust is funded. This will also ensure that the trust beneficiaries receive a "step up" in the cost basis of the trust assets to the fair market value. This means that if the assets are sold shortly after the death of the grantor, little or no capital gains tax will be owed.