Page 18 THE REVERE ADVOCATE – FRIDAY, JULY 17, 2026 - LEGAL NOTICE - IRREVOCABLE TRUSTS AND RENTAL REAL ESTATE R ental real estate is one type of asset that can be transferred to an irrevocable Trust without any adverse tax consequences. The real estate can also be sold by the Trust and the net sales proceeds therefrom can be used to purchase another piece of rental real estate at any time during or after the so-called “five-year look-back” period. Whenever you do transfer rental real estate to such a Trust, there is a fi ve-year period that must elapse before this otherwise disqualifying transfer will no longer be considered a disqualifying transfer. In other words, once the five-year period has gone by, the assets held inside the Trust will not be countable for MassHealth eligibility purposes. There would also be no adverse income tax consequences associated with the sale of the rental property while held in the irrevocable Trust. In eff ect, the same capital gains taxes, if any capital gain to begin with, would be paid just as if the rental real estate were held directly in your name. A typical Medicaid irrevocable Trust is designed as an “income only” Trust, meaning the Trustee is obligated to pay out the income (if any) earned by the Trust to the Settlor (often referred to as the Grantor or Donor) of the Trust. “Net” rental income is “income”. Therefore, you would take all of your gross rents collected for the year and deduct all of the expenses attributable to the rental property in order to arrive at “net” rental income. The Settlor is the individual who creates the Trust and who is retaining the right to receive the income for the rest of his or her life. There cannot be any right to receive any “principal” from the Trust under any circumstances. If there is, the Trust will not qualify, and the assets held inside the Trust will be countable for purposes of MassHealth eligibility. To be technically correct, each tenant would write out a check made payable to the Trust. You would apply for a federal ID number in the name of the Trust and once obtained, open up a checking account in the name of the Trust. You may also wish to fi le a separate Trust income tax return to report the rent income and rent expenses for each calendar year. The federal form is Form 1041 and the Mass form is Form 2G. These types of Trusts are drafted in such a way as to be treated as “Grantor-type” Trusts for federal and state income tax purposes as the Settlor is considered to be the “owner” for federal income tax purposes. Therefore, the Trust will not pay any federal or Mass income taxes if there is any net rental Estate of: Date of Death: To all interested persons: A Petition for income (i.e. a profi t). Rather, the Trust will issue a Grantor Letter to the Settlor that would be utilized by him or her in preparing an individual income tax return. The Grantor Letter is what allows you to fi gure out how much income to report on your individual income tax return. These Medicaid irrevocable Trusts are therefore designed to be income tax neutral, resulting in no increase or decrease in income tax liability to the Settlor. If the rental real estate is sold by the Trust, the net sales proceeds therefrom must be retained in Trust and the Settlor would then be entitled to the investment income generated therefrom, whether it be from interest income, dividend income or capital gain income. In the alternative, if replacement real estate is purchased, title must be held in the same Trust and not be purchased by the Settlor in his or her own name. Otherwise, that would start the fi ve year look back period all over again. 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. YOUR LOCAL NEWS & SPORTS IN SIX LANGUAGES. SUBSCRIBE TO THE ADVOCATE ONLINE BY SCANNING HERE! of requesting that the Court enter a formal Decree and Order and for such other relief as requested in the Petition. The Petitioner requests that: of be appointed as Personal Representative(s) of said estate to serve on the bond in . .
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