Do I Need a Trust in New York City?

As an estate planning attorney in New York, clients often ask me “Do I need a trust?” While every situation is different, there are some key considerations to help you decide if a trust is right for your needs.

You’ll need a trust if:

• You want Medicaid to not take your house

  A lot of people need Medicaid for their homecare and nursing home as they get older. Putting a house in a trust can protect it from being taken by Medicaid.

• You want to avoid probate

  Assets in a trust don’t pass through probate, which saves time and legal fees.

• You prefer asset distribution to be private

  Trusts are not public records like wills, so your information remains private.

• You like to control and manage your assets after death

  You can specify how and when assets are distributed after you pass away. You can dictate whether income, principal, or both income and principal will be distributed to your beneficiaries and for what purposes. You can have your assets managed according to trust terms for generations after your death.

• You want to protect your assets from lawsuits and divorce

  Irrevocable trusts can reduce your wealth in paper and protect it from lawsuits, creditors, and divorce.

• You want to protect minor children or beneficiaries with special needs

  You can provide financial resources while limiting their legal control.

• You have a blended family

  Most state laws have the spousal election rule which requires a person to leave a majority of their estate to their spouse. Trusts allow you to leave a majority of your assets to your children instead of your second or third spouse.

• You have assets above the estate tax exemption amount

  If you have assets above $6.94 million (as of 2024), you need a trust to minimize estate taxes in New York.

If any of these situations apply to you, we can meet with you to evaluate your specific goals, assets, and family circumstances. We will then explore what customized trust options that may work best in your unique situation. If you need legal representation, we at the Law Offices of Albert Goodwin are here for you. We are located in Midtown Manhattan in New York City. You can call us at 212-233-1233 or send us an email at [email protected].

Common Misconceptions About Trusts

Before evaluating whether a trust is right for your situation, it helps to clear up some misconceptions that come up regularly in our consultations.

"Only the wealthy need trusts." Trusts are useful tools for families across a wide range of wealth levels. A modest middle-class family with a single home benefits from a revocable trust for probate avoidance just as much as a high-net-worth family benefits from sophisticated tax planning. The trust is a tool that scales to the situation, not a status symbol limited to the rich.

"A trust takes away my control." A revocable trust during your lifetime leaves you in complete control. You serve as the trustee, you manage the assets, you make all decisions, and you can amend or revoke the trust at any time. The control issue only arises with irrevocable trusts, and even then the structure can be designed to preserve as much control as the planning purpose allows.

"A trust avoids all taxes." Trusts can be used for tax planning but they do not eliminate all tax obligations. Revocable trusts are tax-neutral during your lifetime. Irrevocable trusts can provide specific tax benefits (estate tax reduction, in particular) but trust income remains taxable, sometimes at higher rates than individual income.

"Trusts are only useful at death." Trusts can provide significant benefits during your lifetime — incapacity planning, asset management for minor or disabled beneficiaries, privacy, and creditor protection in certain structures.

Specific Trust Structures and What They Do

Different trust structures address different needs. The most common in our practice include:

Revocable living trust. The general-purpose probate-avoidance and incapacity-planning tool. Most useful for clients with real estate (since real estate is the asset that drives probate proceedings) and clients with privacy concerns.

Medicaid Asset Protection Trust. An irrevocable trust used to hold the home and other assets outside Medicaid's countable resources. Effective after the five-year look-back period has expired. Allows the grantor to qualify for institutional Medicaid while preserving assets for the family.

Supplemental Needs Trust. Holds assets for a disabled beneficiary without disqualifying the beneficiary from SSI, Medicaid, and other means-tested benefits. First-party SNTs (holding the beneficiary's own assets) have Medicaid payback requirements; third-party SNTs (funded by someone else) do not.

Spousal Lifetime Access Trust (SLAT). A married client makes a gift to a trust for the other spouse's benefit. The gift uses the grantor's federal gift exemption while preserving indirect access through the other spouse's lifetime interest. Useful for clients facing potential changes in the federal estate tax exemption.

Credit Shelter Trust. Funded at the death of the first spouse with assets up to the federal or New York estate tax exemption. The surviving spouse can benefit from the trust during life, but the trust's assets are not included in the surviving spouse's estate at death — using both spouses' exemptions efficiently.

Irrevocable Life Insurance Trust (ILIT). Owns life insurance policies on the grantor's life. The death benefit passes to the trust outside the grantor's estate, avoiding estate tax on the proceeds.

Charitable Remainder Trust (CRT). Pays income to a non-charitable beneficiary for a term, with the remainder going to charity. Provides current income, an income tax deduction, and an estate tax benefit.

Generation-Skipping Dynasty Trust. Holds assets for children, grandchildren, and beyond, using the GST exemption to move wealth across generations efficiently.

When a Trust Is Probably Not Necessary

For some clients, a will-based plan is sufficient and a trust adds cost without proportional benefit. Factors that suggest a will-based plan may be enough:

• The estate is small enough that probate fees and delays are minor.
• The primary assets are passing by beneficiary designation (retirement accounts, life insurance) or by survivorship (jointly held accounts).
• No real estate, or the real estate is held jointly with a spouse who will survive.
• Privacy is not a particular concern.
• The estate is not large enough to face federal or New York estate tax exposure.
• No special-needs beneficiaries.
• No expected need for Medicaid or other planning that requires advance preparation.

For these clients, a simple will package — will, durable power of attorney, health care proxy, HIPAA release — accomplishes the necessary planning without the additional complexity of trusts.

How to Evaluate Whether a Trust Is Right for You

A useful framework for evaluating whether you need a trust:

1. Identify your goals. What are you trying to accomplish? Probate avoidance? Tax planning? Asset protection? Special-needs planning? Privacy?
2. List your assets. What do you own? How is each item titled? What would happen to each at your death under current titling and beneficiary designations?
3. List your family. Who are your beneficiaries? What special considerations apply to any of them (minors, disabilities, blended family, conflicts)?
4. Identify the gaps. Where does your current situation fail to achieve your goals?
5. Match trust structures to the gaps. Which trust types address the gaps you have identified?
6. Weigh costs and benefits. What does setting up and maintaining the trust cost? What benefits does it produce? Does the math justify the trust?

This is the work we do in initial consultations — gathering the information, identifying the gaps, and recommending a specific plan that fits your situation.

The New York Estate Tax Exposure

New York has its own estate tax in addition to the federal estate tax. The New York exclusion is significantly lower than the federal exclusion. Worse, New York has a "cliff" — estates that exceed the exclusion by more than 5 percent lose the entire benefit of the exclusion, not just the excess. This makes careful planning around the New York threshold particularly important.

For clients near or above the New York threshold, trusts and lifetime giving strategies can substantially reduce the eventual tax bill. The math matters, and the planning has to be done thoughtfully.