When Maria came to our office last spring, she was visibly worried. After 30 years of working as a nurse at a Brooklyn hospital and carefully saving every penny she could, she faced a terrifying reality: her husband needed long-term care, and their life savings was about to vanish into medical bills. "We did everything right," she told me, her voice breaking. "We worked hard, we saved, we bought a home. But now I'm going to lose everything we built together."
Maria's story isn't unique. Every week, I meet middle-income families in Brooklyn, Queens, and Staten Island facing similar fears. They've worked their entire lives to build something for themselves and their families, only to discover how vulnerable those assets really are. The good news? With proper planning—specifically through asset protection trusts—you can shield what you've worked so hard to build.
If you've been wondering how to protect your assets from potential creditors, lawsuits, or the devastating costs of long-term care, you're in the right place. Let me walk you through everything you need to know about setting up a trust for asset protection in New York, drawing from nearly three decades of helping families just like yours.
Understanding Asset Protection Trusts: What They Are and Why You Need One
Let's start with the basics. An asset protection trust is a specialized legal arrangement designed to safeguard your wealth from future creditors, lawsuits, and other financial threats. Think of it as a fortress around your assets—once properly established, these trusts create a legal barrier that makes it extremely difficult for creditors to reach what's inside.
Here's what makes these trusts powerful: when you transfer assets into an irrevocable trust, you're essentially removing them from your personal ownership. This isn't about hiding assets or doing anything improper—it's about using legal structures that have existed for decades to protect what you've earned.
For middle-income families in New York, the most common and practical type of asset protection trust is the Medicaid Asset Protection Trust (MAPT), sometimes called a Legacy Trust. These trusts serve a dual purpose: they protect your assets from long-term care costs while helping you qualify for Medicaid when you need it most. And believe me, with nursing home costs in New York averaging $150,000 to $200,000 per year, this protection isn't a luxury—it's a necessity.
The New York Difference: What Makes Our State Unique
Before we dive into the how-to, you need to understand something crucial about New York: our state doesn't recognize self-settled asset protection trusts. What does that mean in plain English? You can't create a trust, name yourself as the primary beneficiary, and expect it to protect you from your own creditors.
This is different from states like Nevada, Delaware, or Alaska, where self-settled domestic asset protection trusts are permitted. But don't worry—this limitation doesn't leave you without options. New Yorkers can still achieve robust asset protection through properly structured irrevocable trusts, particularly MAPTs.
Another important New York consideration is the Medicaid look-back period. When you apply for Medicaid to cover nursing home care, the state reviews all asset transfers made within the previous five years. Transfer assets within this window, and you'll face a penalty period where you're ineligible for benefits. This is why I always tell clients: the best time to set up an asset protection trust was five years ago. The second-best time is today.
Step-by-Step: Setting Up Your Asset Protection Trust
Now let's get practical. Here's exactly how to establish an asset protection trust in New York, broken down into manageable steps.
Step 1: Consult with an Experienced Estate Planning Attorney
I can't stress this enough: setting up an asset protection trust isn't a DIY project. The legal requirements are complex, the tax implications are significant, and mistakes can be costly. You need an attorney who specializes in elder law and estate planning, preferably one who understands the unique cultural and financial dynamics of middle-income New York families.
During your initial consultation, a good attorney will review your complete financial situation, including:
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Your assets (home, savings, investments, business interests)
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Your family situation and goals
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Your health and likely care needs
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Your concerns about creditor protection or Medicaid planning
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The timing of when you might need long-term care
This comprehensive review ensures the trust is tailored to your specific circumstances. Remember Maria from the beginning? Her situation was different from the family I met the next day—a small business owner worried about liability protection. One-size-fits-all doesn't work with asset protection planning.
Step 2: Define Your Trust's Purpose and Participants
Once you've decided to move forward, your attorney will help you make several critical decisions:
Who will be the trustee? This is the person or institution that will manage the trust's assets. For asset protection to work, you cannot be the sole trustee. Many families choose an adult child, a trusted family friend, or a professional trustee. Some select co-trustees to provide checks and balances. The trustee must be someone reliable and financially responsible—they'll be handling your life savings.
Who will be the beneficiaries? These are the people who will benefit from the trust. In a MAPT, you might structure it so you can receive income from the trust but not access the principal. Your spouse and children are typically named as beneficiaries, with specific instructions about how and when they can receive distributions.
What assets will you transfer? This requires careful consideration. Common assets placed in protection trusts include:
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Your primary residence
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Investment accounts
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Rental properties
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Business interests
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Cash savings
However, certain assets generally cannot or should not be placed in these trusts, including retirement accounts like 401(k)s and IRAs (these have their own creditor protections under federal law).
Step 3: Draft the Trust Agreement
This is where your attorney's expertise becomes invaluable. The trust document must be meticulously drafted to accomplish your goals while complying with New York law. A properly drafted Medicaid Asset Protection Trust will include:
Clear irrevocable language: The document must explicitly state that the trust is irrevocable and cannot be changed or revoked by you, the grantor. This permanence is what provides the legal protection.
Detailed trustee powers and limitations: The agreement specifies exactly what the trustee can and cannot do with trust assets. This might include the power to buy or sell property, invest funds, make distributions to beneficiaries, or maintain your residence.
Distribution provisions: The trust spells out how and when beneficiaries can receive benefits. Many MAPTs allow you to remain in your home for life and receive income generated by trust assets, while protecting the principal for your heirs.
Medicaid-compliant provisions: If Medicaid planning is a goal, the trust must be carefully structured to meet New York's specific requirements. This includes provisions ensuring you don't retain too much control (which could cause Medicaid to count the assets) while still providing for your needs.
The drafting process typically takes several weeks, as your attorney ensures every clause serves your protection goals without triggering unintended tax consequences or Medicaid eligibility issues.
Step 4: Execute the Trust Document
Once the trust agreement is finalized, you'll need to sign it. While New York doesn't legally require notarization for a trust to be valid, I strongly recommend having your signature notarized and witnessed. This extra step prevents future disputes about whether the document is authentic and properly executed.
This signing ceremony might seem ceremonial, but it's a significant moment. You're taking concrete action to protect your family's future—something many people talk about but never actually do.
Step 5: Fund the Trust (The Most Critical Step)
Here's a truth that surprises many people: an unfunded trust provides zero protection. The trust only shields assets that have been properly transferred into it. This funding process is where planning becomes action, and it requires meticulous attention to detail.
For real estate: Your attorney will prepare a new deed transferring the property from your name to the trust's name. This deed must be recorded with the county clerk's office in the county where the property is located. The new deed will read something like "The Smith Family Asset Protection Trust, dated January 15, 2026."
In Brooklyn, where many of our clients own co-ops rather than condos, this process can be more complex, as you'll need co-op board approval for the transfer. Some co-ops are familiar with this process; others require education and negotiation. This is another reason why working with a local attorney who understands Brooklyn's real estate landscape is invaluable.
For bank accounts and investments: You'll need to retitle these accounts in the trust's name. This typically involves contacting each financial institution, providing them with a copy of the trust document (or a certification of trust), and completing their transfer paperwork. The process can be time-consuming—each bank has its own procedures—but it's essential.
For business interests: If you own a business, transferring your interest to the trust requires careful planning. You may need to amend operating agreements, notify business partners, and ensure the transfer doesn't trigger unwanted tax consequences or violate any buy-sell agreements.
For personal property: While less common, some families transfer valuable personal property like jewelry, artwork, or collectibles into the trust. This typically involves creating a schedule or assignment document listing these items.
The funding process usually takes between two and eight weeks, depending on the complexity of your assets and the responsiveness of various institutions. Don't get discouraged if it feels tedious—each properly transferred asset is one more piece of your legacy that's now protected.
Step 6: Obtain an Employer Identification Number (EIN)
Once your trust is established and funded, it becomes a separate legal entity for tax purposes. You'll need to obtain an Employer Identification Number (EIN) from the IRS—think of it as a social security number for your trust. Your attorney can handle this, or you can apply online through the IRS website. The process is straightforward and typically takes just a few minutes.
This EIN is necessary for the trust's tax filings and for opening any new accounts in the trust's name.
Step 7: Maintain and Monitor Your Trust
Setting up the trust isn't a "set it and forget it" proposition. Ongoing management is essential. Your trustee will need to:
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File annual tax returns for the trust (typically Form 1041)
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Maintain accurate records of all trust income and expenses
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Make appropriate distributions according to the trust terms
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Invest trust assets prudently
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Keep beneficiaries informed as required by the trust document
Additionally, you should review your trust with your attorney every few years or whenever your circumstances change significantly. Laws change, family situations evolve, and what made sense five years ago might need adjustment today.
Understanding the Five-Year Look-Back Period
Let me share another client story that illustrates why timing matters. Robert and Susan, a couple from Queens, called me after Susan's mother was diagnosed with early-stage dementia. "We need to protect Mom's house," Robert said urgently. "Can we set up a trust right now?"
The answer was yes—we could set up the trust. But here's the hard truth I had to share: because of the five-year Medicaid look-back period, that trust wouldn't immediately protect the house from Medicaid estate recovery if Susan's mother needed nursing home care within those five years.
The look-back rule works like this: when you apply for Medicaid nursing home benefits in New York, the state reviews all asset transfers made during the 60 months (five years) before your application date. Any transfers made during this period without receiving fair market value in return can result in a penalty period—a stretch of time when you're ineligible for Medicaid, calculated based on the value of what you transferred.
This is why I tell every client: asset protection planning should happen when you're healthy and planning ahead, not when you're in crisis mode. If you're in your 50s or 60s and in reasonably good health, now is the ideal time to establish a MAPT. By the time you might need long-term care in your 70s or 80s, the five-year look-back period will have passed, and your assets will be fully protected.
That said, even if you're facing a shorter timeframe, there are still strategies we can employ. Partial protection is better than no protection, and other planning tools might complement a trust to maximize what you can preserve.
What You Can—and Can't—Do After Creating an Irrevocable Trust
One of the biggest concerns I hear from clients is: "If I put my house in a trust, does that mean I can't live there anymore? What if I need to sell it?"
Let's clear up these misconceptions. A properly structured Medicaid Asset Protection Trust allows you to:
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Continue living in your home for as long as you wish
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Receive any income generated by trust assets
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Have the trustee pay for home maintenance, repairs, and improvements
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Make decisions about your living situation
What you typically cannot do is:
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Directly sell the home and pocket the proceeds (though the trustee can sell it and purchase a new residence if needed)
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Use the trust's principal for your benefit in ways that would jeopardize Medicaid protection
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Change or revoke the trust terms
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Add assets to the trust after it's established (though you can create additional trusts)
Think of it this way: you're trading direct control for long-term protection. Yes, you'll need the trustee's cooperation for significant financial decisions. But if you've chosen your trustee wisely—and this is crucial—this shouldn't create problems in your daily life. Most trustees work collaboratively with the grantor, especially when the grantor is their parent or close family member.
The Costs and Considerations
I believe in transparency, so let's talk about what asset protection planning costs. In the New York area, attorney fees for creating a Medicaid Asset Protection Trust typically range from $3,000 to $8,000, depending on the complexity of your situation. Additional costs might include:
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Deed preparation and recording fees: $500-$1,000
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Financial account transfer fees: vary by institution
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Ongoing trustee fees if you use a professional trustee: typically 1-2% of trust assets annually
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Annual tax preparation for the trust: $500-$1,500
Yes, these numbers might make you wince. But consider them against the alternative: losing $150,000 to $200,000 per year to nursing home costs, or watching your children's inheritance evaporate to pay for care. Viewed in that light, asset protection planning is one of the smartest investments you can make.
Many families initially balk at the cost and decide to wait. Then, years later, they're back in my office having already spent hundreds of thousands on long-term care, asking if there's anything we can do. The answer is usually "not much." The money that could have funded decades of protection has instead been consumed by care costs.
Common Mistakes to Avoid
Over nearly 30 years of practice, I've seen families make the same mistakes repeatedly. Here are the pitfalls to avoid:
Waiting too long: As we've discussed, the five-year look-back period makes timing critical. Don't wait until you or a loved one is already ill.
Incomplete funding: A trust that's never funded is useless. I've reviewed situations where families paid an attorney to create a trust, received the documents, and then never followed through with transferring their assets. Years later, they discover the trust provides no protection because it's empty.
Using the wrong trustee: Choosing a trustee who's unreliable, financially irresponsible, or likely to have conflicts with beneficiaries can turn your trust into a source of family conflict rather than protection.
Attempting DIY solutions: Online forms and generic trust documents can't account for New York's specific laws or your unique family situation. What works in Florida or California might create serious problems here.
Failing to update beneficiary designations: If you have life insurance or retirement accounts, the beneficiary designations on those accounts override your trust. Make sure your overall estate plan is coordinated.
Not understanding the long-term commitment: An irrevocable trust is, well, irrevocable. Make sure you're comfortable with the terms before signing, because you typically can't change your mind later.
How Asset Protection Trusts Fit Into Your Broader Estate Plan
Asset protection trusts shouldn't exist in isolation. They're most effective as part of a comprehensive estate plan that might also include:
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A will (to cover any assets not in the trust)
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Powers of attorney (for financial and healthcare decisions)
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Healthcare directives (specifying your wishes for medical care)
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Possibly a revocable living trust (for probate avoidance and privacy)
At Alatsas Law Firm, we take a holistic approach, looking at your complete picture and designing a coordinated plan that addresses all your concerns: asset protection, Medicaid planning, estate tax reduction, probate avoidance, and ensuring your wishes are honored.
Real Results: The Peace of Mind Asset Protection Provides
Let me return to Maria's story. After our initial meeting, she and her husband decided to move forward with establishing a Medicaid Asset Protection Trust. We transferred their Brooklyn home (their most valuable asset) and their savings into the trust, with their daughter serving as trustee.
That was five years ago. Last month, Maria called me with an update. Her husband's condition had declined to the point where he needed nursing home care. She was calling not in panic, but with gratitude. "Because we planned ahead, because we set up that trust when you told us to, my husband is getting the care he needs, and I'm not losing everything," she said. "I can still live in our home. Our daughter will still inherit something. You gave us the gift of peace of mind when we needed it most."
These are the moments that remind me why I do this work. Yes, the legal technicalities and the documentation matter. But what really matters is the family who can sleep at night knowing they've protected what they've worked a lifetime to build.
Taking the Next Step
If you've read this far, you're already ahead of most people. You're thinking proactively about protecting your assets and your family's future. That awareness is the first step. Now it's time for action.
Here's what I recommend:
Gather your information: Make a list of your assets—your home, accounts, investments, business interests. Note approximate values. This will help your attorney understand your situation quickly.
Consider your goals: What are you most worried about? Long-term care costs? Lawsuit protection? Preserving an inheritance for your children? Understanding your priorities helps shape the planning.
Don't wait for perfection: You don't need to have everything figured out before meeting with an attorney. In fact, trying to solve everything yourself first often leads to confusion. A good estate planning attorney will guide you through the decision-making process.
Act while you're healthy: Asset protection planning is most effective—and most options are available—when you're healthy and thinking clearly. Don't wait until a health crisis forces your hand.
The families I serve in Brooklyn, Queens, and Staten Island face unique challenges. You've worked hard for what you have, often in jobs that don't come with large pensions or generous benefits. You've saved carefully, invested in a home, and built something meaningful. You deserve protection for those assets—protection that allows you to face the future with confidence rather than fear.
Asset protection through trusts isn't about being wealthy; it's about being wise. It's about taking legal, ethical steps to ensure that what you've earned serves your family's needs for generations to come. And it's about making sure that if long-term care becomes necessary, you can access that care without watching your life savings disappear.
Every family's situation is different, which is why personalized legal guidance is so important. But the principles I've outlined here—using irrevocable trusts for asset protection, planning well in advance, properly funding your trust, and working with experienced counsel—these principles apply to almost everyone concerned with protecting their hard-earned assets.
Your family's financial security is too important to leave to chance. By understanding how asset protection trusts work in New York and taking action while you still have time on your side, you're making one of the smartest decisions possible. You're choosing security over uncertainty, planning over panic, and protection over loss.
That's a choice you'll never regret—and one your family will thank you for years from now.
