MEDICAID ASSET PROTECTION TRUSTS: SELECT DRAFTING AND POST-EXECUTION ISSUES Submitted By: ROBERT J. KURRE, ESQ. Kurre Schneps LLP Manhasset, NY 247
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MEDICAID ASSET PROTECTION TRUSTS: SELECT DRAFTING AND POST-EXECUTION ISSUES Kurre Schneps LLP 1615 Northern Boulevard Manhasset, New York 11030 Tel: (516) 829-7900 www.ksesqs.com Options For Treatment of Trust Income Mandatory Distributions to Grantor Discretionary Distributions to Grantor - See 18 NYCRR Sec. 360-4.5(b)(1) (ii) Sprinkling Provision Income Accumulated Discretionary Distributions to Third Parties NOTE: Trust cannot provide that Grantor s right to receive income is terminated upon Grantor s need for long-term care. See EPTL 7-3.1(c) 1
Taxation of Trust Income Income Taxable to Trust Income Taxable to Beneficiaries Income Taxable to Grantor (IRC Sections 671-677) Special Power of Appointment (IRC Section 674(a)) Reacquire Corpus by Substituting Property of Equal Value (IRC Section 675(4)) 2 Taxation of Trust Income Typically want the Trust to be a Grantor Trust for income tax purposes because Grantor in lower income tax bracket; Qualify for IRC Section 121 capital gains tax exclusion; and Compressed income tax brackets for Trusts (in 2016 highest marginal income tax rate of 39.6% is reached for Trust income of over $12,400) 3
Gift Taxation of Distributions from the Trust Non-taxable: If the transfers funding the Trust were classified as completed gifts, the distributions from the Trust are not gifts. Taxable: If the transfers funding the Trust were classified as incomplete gifts and hence not subject to gift tax, the Trust distributions from the Trust to individuals (other than the Grantor) are gifts. 4 Strategic Planning For Trust Income Rental Scenarios Grantor sells his home and moves in with child Grantor lives in his own two family home which has one unit rented Non-Income Producing Assets Sample Provision: My Trustee may make investments which yield little income or none at all 5
Strategic Planning For Trust Income Partial Income Distributions to Grantor Does the Grantor need all the income being generated on Trust assets? Emptying the Trust Is there a Back Door Provision which allows for this? 6 Drafting the Back Door Provision Primary Goal: a) Allow for distributions of Trust principal during the Grantor s life to person or persons other than the Grantor or Grantor s spouse (i.e., issue) Other Important Considerations: a) Preserving the Grantor s estate plan to the extent possible b) Protecting funds in the Trust from claims of creditors of the Trustee-beneficiary c) Keeping the Trust funds out of the taxable estate of the Trustee-beneficiary if he or she predeceases the Grantor 7
Right of Election The Typical Medicaid Asset Protection Trust is a testamentary substitute because Grantor retained right to receive income and/or Grantor retained right to possess or enjoy Trust property See Matter of Reynolds, 87 N.Y.2d 633, 642 N.Y.S.2d 147 (1996) where the Grantor of an irrevocable Trust retained a Special Power of Appointment making the Trust a testamentary substitute To avoid becoming a testamentary substitute under EPTL 5-1.1-A(b)(1)(F), the Grantor cannot retain the above rights and Grantor s death must occur at least one year after the transfer to the Medicaid Asset Protection Trust was made 8 Funding Issues Make certain the Trust has been properly executed before property is transferred to the Trustee of the Trust. See EPTL 7-1.17(a) Simply listing property on Schedule A to the Trust does not make it part of the Trust. See EPTL 7-1.18 The transfer of assets capable of registration, such as real estate, stocks and bonds should be effectuated by recording of a deed or completing registration in the Trustee s name. See EPTL 7-1.18 A Trustee, not the Trust itself, holds legal title to Trust property. See EPTL 7-2.1 9
Funding Issues The transfer of assets capable of registration, such as real estate, stocks and bonds should be effectuated by recording of a deed or completing registration in the Trustee s name. See EPTL 7-1.18 The transfer of assets not capable of registration should be effectuated by a written assignment describing the asset with particularity and delivering it to the Trustee. See EPTL 7-1.18 A Trust is not valid until property has been transferred to the Trustee. See Matter of Doman, 68 A.D.3d 862, 890 N.Y.S.2d 632 (2 nd Dept. 2009). 10 Return of Gifts by Trustees Exchange of Property Grantor can reacquire Trust property by substituting property of equivalent value (See IRC Section 675(4)) Return of Funds to the Grantor must come from the Trustee not a beneficiary of the Trust. See e.g.s. FH #7206285Q (Suffolk County) (September 29, 2016) and FH #6072129P (Suffolk County) (August 20, 2012) Full or Partial Revocation of the Trust. See EPTL Section 7-1.9 11
Return of Gifts by Trustees Revocation becomes more challenging if a beneficiary is disabled, a minor, or uncooperative A Grantor who retained a Special Power of Appointment in the Trust can exercise the Power to remove the disabled, minor, or uncooperative beneficiary What if the Grantor has become incapacitated? 12 Violation of Terms of Trust The withdrawal of funds from an irrevocable Trust in favor of the Grantor in clear violation of the terms of the Trust renders the entire Trust corpus a countable resource. See e.g.s. FH #6986718J (Suffolk County) (May 22, 2015) and FH #7197626Y (Suffolk County) (February 24, 2016). 13
Violation of Terms of Trust FH #69867185J (Suffolk County) (May 22, 2015) Appellant s argument that Grantor was incapacitated and could not violate the Trust terms or withdraw any monies from Trust was not persuasive The Appellant is bound by the actions of the Trustee. 14 Violation of Terms of Trust FH #7197626Y (Suffolk County) (February 22, 2016) Trust language did not expressly provide that the Trustee could not distribute Trust principal to the Appellant; it was silent on the issue Spendthrift clause insufficient to restrict principal distributions to Appellant Appellant argued that erroneous withdrawal was returned to the Trust six months later and it did not render the Trust instrument void 15
Violation of Terms of Trust As the Trust principal was withdrawn for the benefit of the Appellant, Administrative Directive 96 ADM-8 requires the Trust principal to be counted as a resource whether or not the monies were returned. (Emphasis added) 16 Scrivener s Error FH #7093865Q (Otsego County) (August 16, 2016) Appellant created a revocable Trust in 2000 Appellant amended and restated the Trust in 2002 making it irrevocable Appellant resigned as Trustee Application denied due to excess resources 17
Scrivener s Error Attorney who drafted the Trust amendment and restatement in 2002 testified at the fair hearing that he made a scrivener s error in that he failed to remove the clause permitting invasions of principal for the Grantor s benefit The fact that the Appellant may not have intended to retain the power to invade the Trust is not controlling here but whether the plain language of the Trust actually permitted the Grantor to do so is. 18 Scrivener s Error Grantor s petitioned for leave of Court to reform a Medicaid Asset Protection Trust to delete provision allowing discretionary distributions of principal to the Grantor. See In re Scheib, 14 Misc.3d 1222(A) (Surrogate s Court, Nassau Co. 2007) Petition granted by Court where the Grantor s intention is clear, the draftsman's mistake should be corrected 19
Medicaid Asset Protection Trusts: Select Drafting and Post-Execution Issues By: Robert J. Kurre, CELA, CAP I. Options For Treatment Of Trust Income A. Mandatory Distributions to Grantor. Trust provides that all income is payable to the Grantor. As such, the income will be considered by Medicaid to be available to the Grantor. Sample provision. The net income of the Trust shall be paid to or applied for the benefit of the Grantor, in convenient installments, at least semi-annually. New York Estates, Powers and Trusts Law Section 11-2.4, or any successor statute, or any similar statute of any other jurisdiction, shall not be elected by the Trustee, and the net income shall not be computed using the optional unitrust provisions of the laws of any jurisdiction. B. Discretionary Distributions to Grantor. Trust provides that Trustee has discretion whether or not income will be distributed to the Grantor. Income that could be paid to the Grantor, but is accumulated, is considered by Medicaid to be available to the Grantor. Sample provision. The net income of the Trust may be paid to or applied for the benefit of the Grantor, in convenient installments, as the Trustee may determine, from time to time, in its sole and absolute discretion. New York Estates, Powers and Trusts Law 1
Section 11-2.4, or any successor statute, or any similar statute of any other jurisdiction, shall not be elected by the Trustee, and the net income shall not be computed using the optional unitrust provisions of the laws of any jurisdiction. C. Sprinkling Provision. Trust provides that Trustee has discretion to distribute income to the Grantor and Grantor=s descendants. Income that could be paid to the Grantor, even though it is accumulated, is considered by Medicaid to be available to the Grantor. Sample provision. The net income of the Trust shall be paid to or applied for the benefit of a class of persons composed of the Grantor and descendants of the Grantor, in any degree, whether presently living or born hereafter, including the Trustee, without regard to equality, as the Trustee may determine, from time to time, in its sole and absolute discretion. D. Income Accumulated. Trust provides that income cannot be distributed to anyone. None of the income will be considered by Medicaid to be available to the Grantor. Sample provision. The net income of the Trust shall be accumulated and added to the principal of the Trust at the end of each calendar year. New York Estates, Powers and Trusts Law Section 11-2.4, or any successor statute, or any similar statute of any other jurisdiction, shall not be elected by the Trustees, and the net income shall not be computed 2
using the optional unitrust provisions of the laws of any jurisdiction. E. Discretionary Distributions to Third Parties. Trust provides that income may, in the Trustee=s discretion, be distributed to persons other than the Grantor. None of the income will be considered by Medicaid to be available to the Grantor. Sample provision. The net income of the Trust shall be paid to or applied for the benefit of a class of persons composed of the descendants of the Grantor, in any degree, including the Trustee, whether presently living or born hereafter, without regard to equality, as the Trustee may determine, from time to time, in its sole and absolute discretion. NOTE: A Trust provision that terminates the Grantor=s right to receive income upon the Grantor=s need for long term care is void as against public policy under EPTL 7-3.1(c). II. Taxation of Trust Income A. Income generated by trust assets is taxable to the Trust, the Grantor, or the beneficiaries of the Trust, depending upon how the trust has been structured. 1. Income Taxable to Trust(ee). Income is taxable to the Trust(ee) if it accumulates in the Trust (unless the Trust is a grantor trust (see 3
below)). 2. Income Taxable to Beneficiaries. Income is taxable to the beneficiaries to the extent that the Trustee actually distributes the income to them (unless the Trust it is a grantor trust (see below)). 3. Income Taxable to Grantor. The Grantor may be taxed on Trust income in accordance with any of the Grantor Trust rules of Code Sections 671-677. Typically the Medicaid Asset Protection Trust is drafted so that the trust is treated as a AGrantor Trust.@ This is helpful when the Grantor is in a lower income tax bracket than other beneficiaries named in the trust. It is also beneficial to obtain the Code Section 121 capital gains tax exclusion if the Grantor=s residence is Trust property and sold during the Grantor=s lifetime. a. Code Section 673 (Reversionary Interests) taxes the income to the Grantor if he/she retains a reversionary interest in either trust principal or income with a present value of more than 5% of the value of the trust. b. Code Section 674 (Power to Control Beneficial Enjoyment) taxes the income to the Grantor if he/she retains the right to 4
control the beneficial enjoyment of the trust property or its income (e.g., limited power of appointment). c. There are eight exceptions under Code Section 674(b) which do not result in income taxation to the Grantor. For example, a power to allocate receipts and disbursements as between corpus and income does not make a trust a grantor trust. See Code Section 674(b)(8). d. Power to Remove and Replace Trustee. Treas. Regs. Section 1.674(d)-2 provides that if the Grantor holds an unrestricted power to remove, substitute, or add trustees and to designate any person including himself/herself the replacement trustee, the trustees= powers are deemed to be exercisable by the Grantor for purposes of determining Grantor trust status and the trust will not qualify for one of the exceptions of Code Sections 674(c) - Excepted powers exercisable by any Trustee other than the Grantor or spouse. e. Code Section 675 (Administrative Powers) taxes the income to the Grantor if he/she retains possession of certain administrative powers. 5
f. Actions taken by the Grantor or non-adverse party without the approval of an adverse party. These actions include the power enabling anyone to dispose of income or principal for less that full value (Code Section 675(1)) or the power enabling the Grantor to borrow without adequate interest or security (Code Section 675(2)). g. Borrowing of Trust Funds. The Grantor has directly or indirectly borrowed the corpus or income and has not completely repaid the loan. (Code Section 675(3)). h. General Powers of Administration, include (a) power to vote or direct the voting of stock, (b) power to control the investment of trust funds, or (c) power to reacquire trust corpus by substituting other property of equal value. (See Code Section 675(4)). i. Code Section 676 (Power to Revoke) does not apply to irrevocable trusts. It deals only with revocable trusts. j. Code Section 677 (Income for Benefit of Grantor) taxes the 6
income to the Grantor if trust income is or may be payable to or for the benefit of the Grantor or his/her spouse, accumulated for them, or applied to the payment of premiums on insurance on the lives of the Grantor or his/her spouse. k. Code Section 677(b) carves out an exception to Code Section 677(a) relative to income for the support of a legal dependent of the Grantor, imposing liability on the Grantor only if the income is actually used for support, not merely if it may be used. TAX PLANNING NOTE: The Trust can be set up so that part of the income is taxable to the Trust and part to the beneficiaries. III. Gift Taxation of Distributions From The Trust A. Non-Taxable. If the transfers funding the Trust were classified as Acompleted gifts@, then the distributions from the Trust are not Agifts.@ Most of the time, however, the elder law practitioner will structure the funding of the Trust not to be a completed gift by virtue of the Grantor reserving an inter vivos limited power of appointment and the desire to obtain a Astep-up@ in basis upon the Grantor=s death. 7
B. Taxable. If the transfers funding the Trust were classified as Aincomplete@ or Anon-completed@ gifts and hence not subject to gift tax, the Trust distributions from the Trust to individuals other than the Grantor are Agifts@ (Treas. Reg. Section 25.2511-2(f)). Keep in mind, however, that New York State no longer has a gift tax for gifts made on or after January 1, 2000, and the U.S. unified gift and estate tax exemption is currently $5.45 million per person. IV. Strategic Planning For Trust Income A. Rental Income. The Medicaid Asset Protection Trust may provide that the Grantor retains the right to use and occupy the residence, but the Grantor has no right to receive rental income (e.g., two family home). One could draft a provision which would provide for the payment of any rental income to the Grantor=s family members other than the Grantor or the Grantor=s spouse. B. Non-Income Producing Assets. The Trust can be drafted to authorize the Trustee to invest in non-income producing assets. C. Partial Income Distributions to Grantor. The Trust can be drafted so that only 8
a portion of the income shall be paid to the Grantor. For example, an applicant for Medicaid home care benefits has total income of $5,000 per month from the Trust and only needs income from the Trust of $2,500 per month to meet his living expenses. A good strategy may be to draft the Trust to provide one-half (2) of the Trust income is distributed to the Grantor (and then put into the Grantor=s pooled income trust account) and the other half (2) of the Trust income will be accumulated in the Trust. This should avoid over-funding the pooled income trust account. D. Emptying the Trust. If the Trust has a Aback door provision@ and the Grantor is now on Medicaid, the Trustee may be able to distribute some or all of the principal from Trust so there are no longer any, or there are at least less, income producing assets in the Trust. However, be aware of the loss of step-up in basis. V. Drafting the ABack Door Provision@ A. The primary goal of the ABack Door Provision@ is to allow for distributions during the Grantor=s life from the Trust to person or persons other than the Grantor or the Grantor=s spouse (e.g., Grantor=s children). To allow for maximum flexibility, it is generally best if this provision provides for unlimited distributions but this can create issues that require special consideration, 9
such as those set forth below, when drafting the Trust. Limiting distributions to health, education, maintenance and support (HEMS) may be too restrictive. B. Other important considerations. 1. Preserving the Grantor=s estate plan to the extent possible. A provision such as the following may be added to the Trust. Sample provision. Any distributions made pursuant to the provisions herein shall be considered as advancements in determining the beneficiary's respective share as provided for hereinafter. However, this may not be fair to the Trustee-beneficiary who ends up using the Back Door Provision to help pay for the Grantor=s assisted living or other expenses. 2. Protecting funds in the Trust from claims of creditors of the Trusteebeneficiary. If a Trustee-beneficiary can make unlimited distributions to himself or herself, his or her creditors could reach the Trust funds. On the other hand, if the Trustee-beneficiary cannot make any distributions to himself or herself (i.e., such distributions can only be authorized by a Co-Trustee such as a sibling), or can only make distributions to himself or herself for health, education, maintenance 10
and support, the Trustee-beneficiary=s creditors cannot reach the Trust funds. See E.P.T.L. 10-7.1 and E.P.T.L. 10-7.2. 3. Keeping the Trust funds out of the taxable estate of the Trusteebeneficiary if he or she predeceases the Grantor. If the Trusteebeneficiary cannot make any distributions to himself or herself (i.e., such distributions can only be authorized by a Co-Trustee such as a sibling), or can only make distributions to himself or herself for health, education, maintenance and support, the assets in the Trust will not be included in the taxable estate of the Trustee-beneficiary if he or she predeceases the Grantor. A Trustee-beneficiary who can distribute Trust funds to himself or herself without an ascertainable standard has a general power of appointment under Code Section 2041 which causes inclusion of the Trust funds in the Trustee=s estate if the Trustee dies prior to the termination of the Trust. However, the Grantor may be willing to take the risk of the Trusteebeneficiary predeceasing because the Grantor may want to give the Trustee-beneficiary the ability to make distributions to himself or herself without any restrictions. If that occurs, Trust language must be drafted to take into consideration E.P.T.L.10-10.1 which limits a Trustee-beneficiary=s power to make unlimited discretionary distribution to himself or herself unless the Trust specifically allows it. 11
Sample provision. Notwithstanding E.P.T.L Section 10-10.1, any Trustee who is also a beneficiary under this Trust shall have the right to make unlimited discretionary distributions of principal to himself or herself. C. If the Grantor wishes to appoint two trusted persons, other than the Grantor or the Grantor=s spouse, to be Co-Trustees of the Trust, the Co-Trustees can authorize unlimited distributions to each other but not to themselves. Sample provision. During the lifetime of the Grantor, the Trustees are authorized to pay or apply such amount or amounts from the income and principal of the Trust (whether equal or unequal, and whether the whole or a lesser amount) as the Trustees may determine, from time to time, in their sole and absolute discretion, to a class composed of the descendants of the Grantor in any degree, including the Trustees, whether presently living or born hereafter, without regard to equality. Any discretion granted hereunder to a Trustee with respect to the disposition of the income and principal may not be exercised in favor of the Trustee, or any person to whom the Trustee has a legal obligation to support, who is included among the persons to whom such discretionary payments may be made. Such discretion shall be exercised by the disinterested Trustee. If at any time, any person is acting as sole Trustee of this Trust, such interested Trustee, may not make any discretionary distributions of principal to himself or herself without the written 12
consent of at least one of Grantor=s adult descendants who is not the interested Trustee. D. In the event only Trustee is appointed, distributions can be authorized as follows. Sample provision. During the lifetime of the Grantor, the Trustee is authorized to pay or apply such amount or amounts from the income and principal of the Trust (whether equal or unequal, and whether the whole or a lesser amount) as said Trustee may determine, from time to time, in its sole and absolute discretion, to a class composed of the descendants of the Grantor in any degree, including the Trustee, whether presently living or born hereafter, without regard to equality. Any discretion granted hereunder to a Trustee with respect to the disposition of the Trust income or principal may not be exercised in favor of a Trustee, or any person to whom the Trustee has a legal obligation to support, who is included among the persons to whom such discretionary payments may be made. Notwithstanding anything herein to the contrary, if a Trustee who is a descendant of the Grantor wishes to make a distribution of Trust income or principal to himself or herself, such Trustee may make such distributions to himself or herself if approved by one of the Grantor=s other adult descendants or, if not so approved, only for said Trustee=s health, education, maintenance or support, as the Trustee may determine, from time to time. 13
VI. Right of Election A. The typical Medicaid Asset Protection Trust is a testamentary substitute under E.P.T.L. 5-1.1-A(b)(1)(F) by virtue of the Grantor retaining the right to receive the Trust=s income and/or the Grantor retaining the right to possess or enjoy the Trust property. Therefore, a Grantor=s retention of the right to use and occupy the Grantor=s residence which is part of the Trust estate makes it a testamentary substitute. In Matter of Reynolds, 87 N.Y.2d 633, 642 N.Y.S.2d 147 (1996), the Court of Appeals held that a Grantor=s reservation of a limited power of appointment in an irrevocable Trust made the Trust property a testamentary substitute. B. To avoid the property transferred to the Trust becoming a testamentary substitute, the Grantor would not be able to retain the rights referenced above (however, the retention of these rights is typically important to the Grantor). In addition, the transferor=s death must occur at least one year after the transfer was made into the Trust in order to avoid having the property transferred into the Trust being considered a testamentary substitute. See E.P.T.L. 5-1.1-A(b)(1)(B). 14
VII. Funding Issues A. First, make certain the Trust has been properly executed before property is transferred to the Trustee of the Trust. The Trust must be in writing and executed and acknowledged by the Grantor of the Trust and, unless such person is the sole Trustee, by at least one Trustee in the same manner required by New York State law for the recording of a deed, or, in lieu thereof, executed in the presence of two witnesses who shall affix their signatures to the Trust. See E.P.T.L. 7-1.17(a). B. Be aware that simply listing property on a Schedule AA@ to the Trust does not make it part of the Trust. See E.P.T.L. 7-1.18. C. The transfer of assets capable of registration, such as real estate, stocks and bonds should be effectuated by recording of a deed or completing registration in the Trustee=s name. See E.P.T.L. 7-1.18. Although the statute refers to this rule only in the context of a Trust Aof which the creator is the sole trustee@, the Trustee should complete the same steps if, as in the typical Medicaid Asset Protection Trust, the creator (i.e., Grantor) is not a Trustee. See Main Practice Commentary, By Margaret Valentine Turano. 15
D. The transfer of assets not capable of registration should be effectuated by a written assignment describing the asset with particularity and delivering it to the Trustee. See E.P.T.L. 7-1.18. E. A Trust is not valid until property has been transferred to the Trustee. Even if the Grantor has properly executed the Trust, it does not become valid until property is transferred to the Trustee. The Trust is not retroactively invalidated because the property is not transferred into it promptly; it simply is not valid until it has a corpus. See Matter of Doman, 68 A.D.3d 862, 890 N.Y.S.2d 632 (2 nd Dept. 2009) (the Grantor created the Trust in August but did not transfer the stock into it until seven months later). VIII. Return of Gifts by Trustees A. Exchange of Property. Often, seniors are comfortable placing title to their residence in a Medicaid Asset Protection Trust since they will continue to live in the residence and their residence is not typically income generating. The lack of income being generated avoids complications. Nonetheless, as long as the individual=s spouse, minor, blind, or disabled child remains in the home or if the applicant executes a Astatement of intent to return home@, the
home is an exempt resource for purposes of Medicaid eligibility for the individual. Hence, one technique would be to place one=s residence into a Medicaid Asset Protection Trust in which the Grantor retains not only a limited power of appointment but, pursuant to Code Section 675, the power to reacquire Trust property by substituting property of an equivalent value. This provision would allow the Grantor to have the option to take back the residence from the Trust in exchange for liquid assets which remained in the Grantor=s name. The liquid assets then would be protected in addition to the residence, which would be an exempt resource as a Ahomestead@ if the applicant=s spouse, minor, blind, or disabled child lives in the residence or if the applicant executes a Astatement of intent to return home@. Example: If the Grantor is married and has his $350,000 residence in a Medicaid Asset Protection Trust and $350,000 in liquid assets remaining in his name, and if further, the individual requires nursing home care before five years have passed since the residence was re-titled into the Trust, the residence could be transferred by the Trustee back to the individual in exchange for the $350,000 in liquid assets. Then, the individual could make an exempt transfer of the residence to the community spouse. Under this scenario, the individual would not have to wait until the five year look back period runs in order to be eligible for Medicaid institutional eligibility. This transaction should not be treated as a taxable event for income tax purposes since the Grantor is the owner of the Trust property for income tax purposes by virtue
of the Trust being considered a grantor Trust. In effect, this is merely an exchange of property by the owner for income tax purposes..b. Full or Partial Revocation of the Trust. Pursuant to E.P.T.L. 7-1.9, an Irrevocable Trust can be revoked or amended upon the acknowledged, written consent of the Grantor and all persons beneficially interested in the Trust. If a Grantor needs a nursing home and transferred funds into the Trust within the last five years, an analysis should be completed to determine if it makes sense to revoke the Trust in its entirety or Apartially revoke@ it by returning a portion of the funds transferred into the Trust. This may result in the elimination, or at least reduction, of the anticipated penalty period. An example of an elimination to the penalty period would be if the Grantor has a spouse or a disabled child who could receive a gift of the property returned from the Trustee of the Trust to the Grantor. An example of a reduction to the penalty period would be following the return of assets to the Grantor, the Grantor engages in a ANote/Gift@ Plan which accelerates Medicaid eligibility for Medicaid institutional benefits (rather than waiting for the transfers to the Trust to fall outside the five year look back period). Sample forms to entirely, or partially, revoke an irrevocable Trust pursuant to E.P.T.L. 7-1.9 follow this outline. C. Return of Funds to the Grantor must come from the Trustee not a
Beneficiary of the Trust who has received a distribution of Trust principal. (SAMPLE FORM TO PARTIALLY REVOKE IRREVOCABLE TRUST TO REMOVE ASSETS FROM TRUST) PARTIAL REVOCATION OF THE JOHN SMITH 2013 IRREVOCABLE TRUST DATED JANUARY 1, 2013 WHEREAS, JOHN SMITH, residing at 123 Any Town, USA 12345, (the Grantor ), and JAMES SMITH, residing at 124 Any Town, USA 12345 (the Trustee ), entered into an agreement dated January 1, 2013, creating the JOHN SMITH 2013 IRREVOCABLE TRUST (the Trust Agreement ); WHEREAS, pursuant to Section 7-1.9 of the Estates, Powers and Trusts Law ( E.P.T.L. ), the Grantor wishes to partially revoke the Trust Agreement with the consent of the persons beneficially interested therein; WHEREAS, the persons beneficially interested, as defined in E.P.T.L. Section 7-1.9, are JAMES SMITH, JOSEPH SMITH, and JERROLD SMITH; NOW, THEREFORE, the Trust is hereby partially revoked with respect to certain of the Grantor s assets which were put into the Trust. Specifically, title to 123 Any
Town, USA. 12345 (Section: 2, Block: 22, Lot: 222) is hereby returned to the Grantor. This Revocation may be executed simultaneously or in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument, and any party hereto may execute this Trust Agreement by signing any such counterpart. IN WITNESS WHEREOF, the parties hereto have executed this Partial Revocation as of this day of October, 2016. JOHN SMITH JAMES SMITH JOSEPH SMITH JERROLD SMITH STATE OF NEW YORK ) ) ss.: COUNTY OF ) On this day of October, 2016, before me, the undersigned, a Notary Public in and for said State, personally appeared JOHN SMITH, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me he executed the same in his capacity, that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.
STATE OF NEW YORK ) ) ss.: COUNTY OF ) On this day of October, 2016, before me, the undersigned, a Notary Public in and for said State, personally appeared JAMES SMITH, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument. STATE OF NEW YORK ) ) ss.: COUNTY OF ) On this day of October, 2016, before me, the undersigned, a Notary Public in and for said State, personally appeared JOSEPH SMITH, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or he executed the same in his capacity, and that by his signature on the instrument, the person upon behalf of which the individual acted, executed the instrument. STATE OF NEW YORK ) ) ss.: COUNTY OF ) On this day of October, 2016, before me, the undersigned, a Notary Public in and for said State, personally appeared JERROLD SMITH, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same
in his capacity, and that by his signature on the instrument, the individual, or he executed the same in his capacity, and that by his signature on the instrument, the person upon behalf of which the individual acted, executed the instrument. (SAMPLE FORM TO REVOKE IRREVOCABLE TRUST IN ITS ENTIRETY) REVOCATION OF THE JOHN SMITH 2013 IRREVOCABLE TRUST DATED JANUARY 1, 2013 WHEREAS, JOHN SMITH, residing at 123 Any Town, USA 12345, (the Grantor ), and JAMES SMITH, residing at 124 Any Town, USA 12345 (the Trustee ), entered into an agreement dated January 1, 2013, creating the JOHN SMITH 2013 IRREVOCABLE TRUST (the Trust Agreement ); WHEREAS, pursuant to Section 7-1.9 of the Estates, Powers and Trusts Law ( E.P.T.L. ), the Grantor wishes to revoke the terms of the Trust Agreement with the consent of the persons beneficially interested therein; WHEREAS, the persons beneficially interested, as defined in E.P.T.L. Section 7-1.9, are JAMES SMITH, JOSEPH SMITH, and JERROLD SMITH; NOW, THEREFORE, the Trust Agreement is hereby revoked in its entirety and the entire Trust Estate, including income and principal, shall be immediately returned to the Grantor. This Revocation may be executed simultaneously or in one or more counterparts, each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument, and any party hereto may execute this Trust Agreement by signing any such counterpart. IN WITNESS WHEREOF, the parties hereto have executed this Revocation as of this day of October, 2016. JOHN SMITH JAMES SMITH JOSEPH SMITH JERROLD SMITH STATE OF NEW YORK ) ) ss.: COUNTY OF ) On this day of October, 2016, before me, the undersigned, a Notary Public in and for said State, personally appeared JOHN SMITH, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me he executed the same in his capacity, that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.
STATE OF NEW YORK ) ) ss.: COUNTY OF ) On this day of October, 2016, before me, the undersigned, a Notary Public in and for said State, personally appeared JAMES SMITH, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument. STATE OF NEW YORK ) ) ss.: COUNTY OF ) On this day of October, 2016, before me, the undersigned, a Notary Public in and for said State, personally appeared JOSEPH SMITH, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or he executed the same in his capacity, and that by his signature on the instrument, the person upon behalf of which the individual acted, executed the instrument. STATE OF NEW YORK ) ) ss.: COUNTY OF ) On this day of October, 2016, before me, the undersigned, a Notary Public in and for said State, personally appeared JERROLD SMITH, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or he executed
the same in his capacity, and that by his signature on the instrument, the person upon behalf of which the individual acted, executed the instrument.
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