Irrevocable Trusts and Asset Protection in Long Island

For most Long Island families, the single most expensive threat to an estate is not the federal estate tax — it is the cost of long-term care, where a private room in a Nassau or Suffolk County nursing home now routinely exceeds $200,000 a year. That is precisely why irrevocable trusts in Long Island have become the cornerstone of serious asset protection: properly drafted and funded five years before a crisis, an irrevocable Medicaid Asset Protection Trust can shelter the family home in Massapequa or Huntington while still allowing your heirs to receive it at a stepped-up basis. The surprising part is that, unlike a revocable living trust, this protection only works because you genuinely give up control — and the law treats that surrender of control as the price of admission.

What an Irrevocable Trust Actually Is — and Why Control Matters

An irrevocable trust is a legal arrangement in which you (the grantor) transfer assets to a trust managed by a trustee for the benefit of your beneficiaries, and you generally cannot amend or revoke it once it is signed. New York governs these trusts under the Estates, Powers and Trusts Law (EPTL), and the irrevocability requirement is anchored in EPTL § 7-1.9, which permits revocation only with the written consent of every person beneficially interested. In practice, that means the trust is locked.

Contrast this with the revocable living trust many Long Island residents use to avoid probate. A revocable trust keeps you in full control — you can dissolve it at breakfast — but because you retain control, the assets remain fully countable for Medicaid and remain in your taxable estate. The irrevocable trust trades that flexibility for protection. The asset is no longer “yours” for creditor, Medicaid, or (when drafted correctly) estate-tax purposes.

The Core Trade-Off in One Sentence

You cannot protect an asset from a creditor or from Medicaid while simultaneously keeping the right to take it back. Every workable asset-protection trust forces you to choose: control or protection. Long Island planners who understand this build trusts that surrender the right powers while preserving the comforts that matter most to clients.

The Two Workhorses: Medicaid Asset Protection Trusts and ILITs

While there are many flavors of irrevocable trust, two dominate Long Island estate planning: the Medicaid Asset Protection Trust (MAPT) and the Irrevocable Life Insurance Trust (ILIT). They solve different problems.

How a Medicaid Asset Protection Trust Works

A MAPT is the most common irrevocable trust on Long Island because of demographics: a large population of homeowners aged 60+ holding most of their wealth in a house that has appreciated dramatically. The trust is typically drafted as a “grantor trust” for income-tax purposes, which produces two valuable outcomes:

• You can retain the right to all income the trust generates (and continue living in the home), while giving up the right to principal.
• Because the assets remain in your gross estate for federal tax purposes, your heirs receive a full step-up in cost basis under IRC § 1014 — meaning the family home in Garden City can be sold after your death with little or no capital-gains tax.

You retain other thoughtful powers too: the right to change trustees, a limited power of appointment to redirect who ultimately inherits, and continued use of the property and its STAR/Enhanced STAR exemptions.

How an ILIT Works

An ILIT is the tool for Long Island families whose total estate may approach the New York estate-tax threshold (the New York basic exclusion amount, indexed annually — see the New York State Department of Taxation and Finance for the current figure). Life-insurance death benefits are income-tax-free, but if you own the policy, the full death benefit is pulled into your taxable estate. By having the ILIT own the policy from inception, the proceeds pass to your beneficiaries outside your estate entirely. Premiums are funded through annual gifts, often paired with “Crummey” withdrawal notices to qualify for the gift-tax annual exclusion.

The Five-Year Lookback: The Rule That Governs Everything

The five-year lookback is the most misunderstood concept in Long Island Medicaid planning. When you apply for institutional (nursing-home) Medicaid through your county Department of Social Services, the agency reviews the prior 60 months of financial records. Any uncompensated transfer — including funding a MAPT — during that window triggers a penalty period of Medicaid ineligibility.

The lesson is simple: the clock starts when you fund the trust, not when you sign it. A trust drafted today protects nothing if you need a nursing home in three years. Plan early.

Two important 2026 nuances for Long Island residents:

1. Community Medicaid is different. Historically, home-care (community) Medicaid had no lookback. New York enacted a 30-month lookback for community Medicaid, but implementation has been repeatedly delayed. Confirm the current effective date with your attorney before relying on home-care planning, because this is a moving target.
2. The penalty is calculated, not absolute. The penalty period equals the amount transferred divided by the regional monthly cost of care set for the New York City/Long Island region. A larger transfer means a longer penalty — which is why partial gifting strategies must be modeled carefully.

Concrete Long Island Scenarios

Scenario 1: The Levittown Homeowner

Margaret, 68 and healthy, owns a mortgage-free home in Levittown worth $650,000 and has $300,000 in savings. She funds a MAPT with the home and $150,000, keeping $150,000 outside for liquidity. Five years and one day later, she enters a Suffolk County nursing facility. The trust assets are protected; she spends down only the retained funds, then qualifies for Medicaid. At her death, her children inherit the home with a stepped-up basis and sell it nearly tax-free.

Scenario 2: The Five-Year Trap in Huntington

Robert waits until age 82, after an early dementia diagnosis, to fund a MAPT with his Huntington home. Eighteen months later he needs memory care. Because he is inside the lookback, the transfer creates a penalty period, and the family scrambles to cover care privately or unwind the trust. This is the most common — and most preventable — mistake we see.

Scenario 3: The ILIT for a Family Business

A Plainview business owner holds a $2 million policy intended to equalize inheritance between a child who runs the business and one who does not. By placing the policy in an ILIT, the $2 million passes outside the New York taxable estate, avoiding a New York estate tax that could otherwise exceed several hundred thousand dollars on a larger estate.

Common Mistakes Long Island Families Make

• Waiting too long. The five-year lookback rewards only those who plan before a health crisis.
• Transferring the home outright to children instead of to a trust. An outright gift loses the step-up in basis, exposes the home to your child’s divorce or creditors, and forfeits your STAR exemption. A trust avoids all three problems.
• Naming yourself trustee. Retaining trustee control over an irrevocable trust can defeat the very protection you sought. Use an independent or family trustee instead.
• Funding the trust on paper but never recording the deed. An unfunded trust protects nothing — the Nassau or Suffolk County Clerk must record the new deed.
• Forgetting the rest of the plan. A trust is one pillar. You still need a pour-over will and current power of attorney and healthcare proxy documents so someone can act if you are incapacitated before the plan is complete.

When to Call a Long Island Estate-Planning Attorney

Irrevocable trusts are unforgiving — once funded, the choices are largely permanent, and a drafting error in a MAPT or ILIT cannot be quietly corrected the way a revocable trust can. You should consult counsel before signing anything if you own a Long Island home you want to protect, if a family member faces a likely nursing-home stay, if your estate may approach the New York estate-tax threshold, or if you are inside or near the five-year lookback window and need to model penalty periods.

An experienced attorney will also coordinate the trust with Surrogate’s Court realities. Probate disputes in Nassau County are resolved at the Surrogate’s Court in Mineola and in Suffolk County in Riverhead, and a properly funded irrevocable trust keeps those assets out of that process entirely — a meaningful benefit given Long Island court timelines. For families weighing these permanent trade-offs, Morgan Legal Group’s Long Island team can model the lookback, draft the trust to preserve the basis step-up, and ensure the deed is actually recorded with the county clerk.

The goal is never to give up control for its own sake. It is to surrender precisely the right powers, at the right time, so that the home you worked decades to own passes to your children instead of a nursing facility’s billing department.

Frequently Asked Questions

Can I live in my home after I put it in an irrevocable trust on Long Island?

Yes. A properly drafted Medicaid Asset Protection Trust lets you reserve a life use (or the right to all trust income) so you continue living in your Nassau or Suffolk County home, keep your STAR exemption, and remain responsible for taxes and upkeep — while the principal is protected.

How does the five-year lookback affect irrevocable trusts in Long Island?

When you apply for nursing-home (institutional) Medicaid, your county reviews the prior 60 months. Funding a trust within that window creates a penalty period of ineligibility. The clock starts when you fund and record the deed, not when you sign — so plan at least five years ahead.

What is the difference between a revocable and an irrevocable trust?

A revocable trust keeps you in full control and can be changed or canceled anytime, but it offers no protection from creditors or Medicaid. An irrevocable trust generally cannot be changed (EPTL § 7-1.9), and that surrender of control is exactly what shields the assets.

Will my children get a step-up in basis if I use a Medicaid trust?

Yes, if the trust is structured as a grantor trust that keeps the assets in your gross estate. Under IRC § 1014, your heirs receive a stepped-up basis at your death, so a long-held Long Island home can often be sold with little or no capital-gains tax.

Is it better to give my house to my kids or put it in a trust?

A trust is almost always safer. An outright gift loses the basis step-up, exposes the home to your child’s divorce or creditors, and ends your STAR exemption. An irrevocable trust protects the home while avoiding all three problems.

What is an ILIT and do I need one on Long Island?

An Irrevocable Life Insurance Trust owns your life-insurance policy so the death benefit passes outside your taxable estate. It is most useful for Long Island families whose total estate may approach the New York estate-tax exclusion amount.

Which Surrogate's Court handles Long Island estates?

Nassau County matters go to the Surrogate’s Court in Mineola and Suffolk County matters to Riverhead. A properly funded irrevocable trust keeps those assets out of the Surrogate’s Court process entirely.

Can an irrevocable trust ever be changed after it is signed?

Rarely and only narrowly. Under EPTL § 7-1.9 it may be revoked or amended with the written consent of all beneficially interested parties, and some trusts include limited powers of appointment or trustee-change rights. This is why the initial drafting must be exact.