Estate planning can be a complicated process for most people, but few things are more complex for the average person than trying to figure out whether or not they should create a living trust. That complexity is magnified by the common assumption that trusts are only for rich people who need special legal maneuvers to leave their massive fortunes to their loved ones. Those assumptions may have had some validity in the past, but today’s New York trust law can benefit your estate planning too.
Trusts are simply legal arrangements that involve three separate parties. The first is the settlor, who creates the trust and funds it by transferring ownership of certain assets to the trust. The second party is the trustee charged with managing those assets as dictated by the trust terms. Finally, there are the beneficiaries for whom the trust was created, and in whose interests the trustee acts.
On the surface, those old preconceptions about trusts being only for the wealthy certainly seem to be valid. After all, why would you want to transfer ownership of your assets to some legal entity, simply to get them into the hands of your heirs when you die? Why not just us a will to accomplish that same goal, and keep your estate planning as simple as possible? The answers to those questions can provide some insight into just how useful trusts can be even for average citizens.
Why Transfer Ownership of Your Assets?
It might not make much sense when you first think about it, but there are some very valid reasons for getting certain assets out of your name and into a trust. First, having your assets in a trust can help to protect them from creditors and shield them from certain tax implications. While the trust will have to file a tax return, you can reduce your personal tax obligation by forsaking ownership of part of your wealth. Moreover, you can use a trust to eliminate certain assets from your estate if you’re concerned that it might be subject to the estate tax when you die.
Why Not Use a Will?
The Last Will and Testament is an important element of any estate plan – and you should have one – but it is far from all-encompassing. Moreover, it is subject to the probate process, and provides none of the tax benefits that you can realize with the use of a trust. So, yes – you should have a will. Just don’t assume that having a Last Will and Testament means that your estate planning work is finished.
Types of Trusts and Their Benefits
One of the reasons why trusts are useful for just about everyone these days is the fact that there are so many different kinds of trusts that can be created. Just consider how one of the following trust types could benefit you and your family:
- A trust for minors can be a great way to protect your children and grandchildren’s inheritance by including provisions to take care of their support and education while they are young. You can even include provisions that provide for a windfall distribution of assets when they reach certain milestones in life like graduating from college or reaching the age of 21.
- You can create an irrevocable life insurance trust and designate it as your policy beneficiary to keep those proceeds out of your estate and avoid potential estate tax implications. You can also use an irrevocable trust as a way to reduce the size of your estate to qualify for Medicaid benefits – a great option if you want to preserve some assets and still get the nursing home financing assistance you need.
- A special needs trust can be used to provide the extra support your disabled family member needs without giving that person a direct inheritance that could place their government benefits in jeopardy.
- If you have a spendthrift heir and want to help that person avoid the loss of his or inheritance to creditors or poor decision-making, you can use a trust to exercise more control over how that heir receives distributions.
New York Trust Law’s Impact
As invaluable as trust can be, it is important to be familiar with the provisions of New York law to ensure that trusts are fully understood and correctly established and funded. One of the most important decisions settlors must make has to do with the nature of the trust and whether to create an irrevocable or revocable trust. Under New York Law, any trust that is designed to be revocable must clearly state that fact within the document. Any trust that does not contain a declaration of revocability is considered to be irrevocable by default.
New York law is complex on the matter of trusts, and includes provisions on certain kinds of trusts that may require settlors to obtain court approval of a trustee – as is the case where testamentary trusts are concerned. The state also requires that assets be retitled in a formal way, unlike some states which simply allow you to list those assets as property of your trust. Protecting beneficiaries’ interests in the trust from creditors can often require the inclusion of specific language in the trust.
Get the Assistance You Need
Because of the complex nature of trusts and the nature of New York trust law, people involved in estate planning should always seek out professional legal help to make sure that everything is done properly. If mistakes are made in the creation or funding of the trust, then important trust benefits may be forfeited. At the Law Offices of Mary A. Miller, P.C., our legal team can work with you to ensure that your estate planning leverages your trust to achieve the most benefit for you and your heirs. WE have the experience and expertise you need to protect assets, secure important tax advantages, and safeguard your future. To learn more about how we can help you with your estate planning needs, contact us online or give us call at (914) 939-6565.