Dear Clients and Friends,
I don’t remember how it happened (did I sign something?), but for the last couple of years, I have been paying full property taxes on my house and then receiving a check in the mail for my STAR reduction. They used to just charge me less upfront. It gets more complicated when you have an irrevocable trust…read on.
CLIENT QUESTION:
My current residence, a Long Island condo, is in an irrevocable Medicaid trust and it received my STAR refund check. I’ve been paying the taxes and should get the refund but the refund was sent to the trust. How can I receive my refund and not violate the trust?
MY RESPONSE:
The way I set up these trusts is that it is your responsibility to pay your property taxes, not your trust. If I didn’t do it this way you would lose your STAR exemption. Since you have to pay the tax, you should receive the refund. However, try explaining this to Medicaid someday. If the trust gets the check (which is understandable because the trust owns the house) and then gives it to you, Medicaid is going to say that you got something (“benefit”) from the trust and now the trust no longer works for Medicaid asset protection purposes. Even if we are right we don’t want to have to litigate this as that litigation may prove more costly than the check received.
So how should you handle this?
1. Try talking with the town. See if they will allow the trust to return the check and issue you one instead. This is probably a waste of time but it should be mentioned.
2. Forget about it. Let the trust keep it and just save it for your children someday. Arguably, this could be a problem because it should have been your money and by you letting the trust keep it you are making a contribution to the trust subject to a five-year look back. This is unlikely to be argued though.
3. Subject to the unlikely contribution and look back argument above, with your consent, the trustee can get the money out of the trust by paying it out to your trust beneficiaries, who can, in turn, send you a postcard from Disney World. It would be out of the trust but their money and they can do anything they want with it, including, by the way, giving it to you.
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