THE REVERE ADVOCATE – FRIDAY, FEBRUARY 24, 2023 Page 17 WHY IRREVOCABLE TRUSTS ARE MOST OFTEN A BETTER CHOICE OVER LEGAL LIFE ESTATES RHS Head Coach David Leary at court side Tuesday during the Patriots win over Hamilton-Wenham, earning a spot in the playoff s. Fans cheer on their Revere Patriot’s boys’ basketball team during their game Tuesday against HamiltonWenham. B y placing your home, rental property or other assets into Revere’s Luke Ellis passes the ball to teammate Ethan Day. Pats Co-Captain Vincent Nichols goes up for a basket during the Patriot’s afternoon game with Hamilton Wenham on Tuesday. an irrevocable trust, the fi ve year look back period will begin. Five years later, the assets in the irrevocable Trust will not be countable for MassHealth eligibility purposes. Furthermore, not only is probate avoided upon the Settlor’s death (i.e. the creator of the trust), but probate would also be avoided if a child/benefi ciary were to die prior to the Settlor (i.e. parent). The predeceased child’s children or even grandchildren would become a benefi ciary of the trust and that child’s benefi - cial interest in the trust would escape the probate process. If that child leaves minor children behind, the trustee would follow the terms of the trust and pay for items such as medical expenses, educational expenses, house expenses, etc. If, on the other hand, a parent chooses to deed the home or rental property to his or her children directly, while reserving a life estate, and one of the children were to predecease the parent, that child’s remainder interest in that property would be part of his or her probate estate. As estate planners, we try to avoid the probate process whenever possible for many reasons, such as cost and time delays. This could present a problem many years down the road if no one takes steps to probate the estate of the predeceased child. Furthermore, in a legal life esPatriot Andrew Leone drives the ball past a Generals player. ~ LEGAL NOTICE OF PUBLIC SALE ~ 1039 BROADWAY REVERE, MA 02151 YEAR MAKE MODEL VIN# 1983 HARLEY DAVIDSON FXR 1HD1EBK160Y112444 tate situation, the parent would need the consent of the child who has a remainder interest in the property in order to sell the property. With an irrevocable trust, the child has no current ownership interest. The trustee is free to sell the real estate any time without the consent of the child. If the trust is drafted as a grantor-type trust, the capital gain exclusion of $500,000 on the sale of the principal residence will still be aff orded to the Settlor of the trust. If it was rental property that was sold, the entire capital gain would still be reported by the Settlor on his or her tax return. The children would not be reporting any of the capital gains transactions on their own tax returns. The trust would actually fi le a tax return as a grantor-type trust and then issue a grantor letter to the Settlor (also referred to as a Grantor). With a legal life estate, the capital gain on the sale of a home or rental property would have to be allocated to the parent who reserved the life estate and the children who are the remaindermen. The computation for IRS purposes is based on the Book Aleph table and the IRS Section 7520 interest rates. For MassHealth purposes, at least for now, the computation is based upon the Social Security POMS tables. Hopefully, MassHealth will agree to use the IRS tables as the IRS tables are much more favorable to the life tenant if the home were to be sold, for example, as less of the net sales proceeds will be placed back on the table for the life tenant only to be included as a countable asset for MassHealth eligibility purposes. With an irrevocable trust, if the home or rental property is sold and converted to cash, the cash is safe inside the irrevocable trust. There is no risk of the trust assets becoming countable. If the parent decides to serve as trustee and there is a trust provision allowing for use and occupancy of any real estate held in trust, then any real estate abatement off ered by the city or town will remain intact. It will not be lost due to placing the home into trust. The trust must be absolutely clear that there can be no principal distributions to the Settlor under any circumstances and that the Trustee must strictly adhere to the terms of the trust and comply with each and every fi duciary duty owed to the remaindermen of the Trust. Joseph D. Cataldo is an Estate Planning/Elder Law Attorney, Certifi ed Public Accountant, Certifi ed Financial Planner, AICPA Personal Financial Specialist and holds a Master’s Degree in Taxation.
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