You've done the right thing — you've transferred your home into an irrevocable trust to protect it from Medicaid spend-down, creditors, or a messy probate process. Smart move. But then the property tax bill arrives in the mail, and suddenly you're wondering: who exactly is supposed to pay this?
It's one of the most common questions families in Brooklyn and across New York ask after setting up an irrevocable trust. The answer isn't as complicated as it might seem, but getting it wrong could create real problems. Let's walk through how it actually works.
The trustee holds legal title — but that doesn't always mean they cut the check
When you transfer your home into an irrevocable trust, the trust becomes the legal owner of the property. The trustee — the person you named to manage the trust — takes on a fiduciary duty to maintain the property, and that includes making sure property taxes get paid on time. Failing to pay can result in a tax lien against the property, which puts everything you were trying to protect at risk.
In theory, the trustee pays property taxes using the assets held within the trust. If the trust holds rental income, investment returns, or other liquid assets, those funds cover the bill. But here's where it gets more nuanced for most Brooklyn families: many irrevocable trusts used for Medicaid planning — often called Medicaid Asset Protection Trusts (MAPTs) — are structured differently.
Grantor trusts: when you still pay the taxes yourself
Most Medicaid Asset Protection Trusts set up by elder law attorneys in New York are structured as "grantor trusts" for tax purposes under IRS rules (Internal Revenue Code §§ 671–677). This means that even though the trust owns the house, you — the grantor — are still treated as the owner for income and property tax purposes.
In practical terms, this is actually a good thing. It means:
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You continue to pay property taxes directly from your own funds
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You keep any property tax exemptions you already qualified for
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The trust assets themselves don't need to be tapped to cover the bill
This setup is intentional. As one New York elder law firm's guidance explains, "the way we set up these trusts is that you remain responsible for the property taxes, even though the house is owned by the trust."
So if you're the grantor living in the home, you'll likely keep writing that property tax check yourself — just as you always did. Nothing changes in your day-to-day experience.
What happens to your STAR exemption in New York?
This is the question New York homeowners really care about. The STAR (School Tax Relief) program provides meaningful savings — Enhanced STAR for seniors 65 and older with household income of $98,700 or less can reduce your school tax bill by approximately $650 annually, according to New York State's Department of Taxation and Finance.
The good news: transferring your home into an irrevocable trust does not automatically cost you the STAR benefit. New York treats a properly structured Medicaid trust like a life estate, meaning you keep your right to occupy the home for life. As long as the property remains your primary residence and you meet the income requirements, you can retain both Basic and Enhanced STAR.
One practical wrinkle: the State may send your STAR rebate check made out to the trust rather than to you personally. If that happens, contact your town assessor's office to have it reissued. You should not deposit a check made out to the trust into a personal account — and you generally don't want trust assets commingled with personal funds, especially if Medicaid eligibility is a goal.
For more detail on how Medicaid liens intersect with your home and trust planning, the Medicaid lien protection strategies page explains how a properly drafted trust can shield your property from estate recovery.
What if the trust doesn't qualify as a grantor trust?
Not all irrevocable trusts are grantor trusts. If you've set up a non-grantor irrevocable trust — which has its own Employer Identification Number (EIN) and files a separate tax return on Form 1041 — the tax obligations shift more completely to the trust itself.
In that scenario, the trustee pays property taxes out of trust assets as a fiduciary obligation. The deduction for those taxes generally flows through the trust's tax return rather than your personal return. If the trust doesn't have enough liquid assets, the trustee may need to sell trust property or seek contributions from beneficiaries, depending on what the trust document allows.
This is less common for basic home-protection trusts in New York, but it does apply to certain asset protection structures and more complex arrangements.
Can a beneficiary be required to pay property taxes?
Beneficiaries don't automatically owe property taxes just because they stand to inherit the home. However, if a beneficiary is living in the property, the trust document can — and sometimes does — require them to cover taxes, insurance, and maintenance as a condition of occupancy. This is common in Qualified Personal Residence Trusts (QPRTs), where the grantor retains the right to live in the home for a set term, and tax responsibilities shift to beneficiaries once that term expires.
Think of it this way: whoever has the right to occupy and benefit from the property typically ends up responsible for its carrying costs, including taxes. The trust document controls the specifics.
If you're a beneficiary unsure of your obligations, reviewing the trust instrument with an attorney is the clearest path forward. The trust administration guidance for trustees and beneficiaries in New York is a good starting point.
Why getting this right matters more than you think
Unpaid property taxes don't just generate late fees. In New York, municipalities can place a tax lien on the property — and eventually move toward tax lien foreclosure if the debt goes unresolved long enough. That can unravel an asset protection plan years in the making.
Beyond that, if you're in the middle of a Medicaid look-back period (five years in New York for nursing home care), unexpected financial transactions involving trust assets can raise red flags. Keeping property tax payments clean and consistent — and clearly documented — matters.
Working with an attorney who understands both the elder law and tax sides of this picture is essential. At Alatsas Law Firm, we've helped Brooklyn families structure irrevocable trusts that protect their homes while keeping property tax obligations clear, exemptions intact, and Medicaid eligibility on track. If you've recently transferred your home into a trust — or are considering it — and have questions about ongoing tax responsibilities, a conversation with our team can help you avoid costly surprises down the road.
You can also explore the pros and cons of transferring your house to children for a broader look at how property transfers affect Medicaid planning and taxes, or review the Medicaid Asset Protection Trust plan overview to understand how these trusts are typically structured in New York.
