How Does a Trust Work in New York City?

A trust can be a powerful legal tool for managing assets and distributing an inheritance, but the details of how trusts function can be complex. In this post, we provide an overview of what a trust is, the key roles involved, different types of trusts, and the benefits trusts can offer in an estate plan.

What is a Trust

A trust is a legal arrangement where assets are transferred from an individual (the Grantor) to another party (the Trustee) who will manage it for the benefit of someone else (the Beneficiary). Trusts can be used to avoid the time and costs of probate in New York, control how assets are distributed after your death, minimize estate taxes, and protect assets.

Key Roles in a Trust

There are three key roles in a trust:

• This is the person who establishes the trust and transfers assets into it. Also called the Trustor or Settlor.
• The person or institution designated to manage the assets in the trust. They handle tasks like investing, distributing income, filing taxes and keeping records.
• Those who receive benefits or distributions from the assets in the trust. Can include spouse, children, other individuals, or charities.

In some trusts, a trust protector is appointed to oversee and monitor the trustee’s actions to prevent abuse.

Types of Trusts

Generally, there are only two types of trusts: revocable and irrevocable. Under this general classification are several subclassifications.

• Revocable Trust

  Can be changed or revoked by the Grantor. Assets remain under your control during life. Avoids probate. Usually, the grantor, trustee, and beneficiary are one person.

• Irrevocable Trust

  Cannot be changed once executed. Provides tax advantages and asset protection. Used for Medicaid asset protection and eligibility for government benefits.

• Living Trust

  Created while you’re alive. Avoids probate in New York and lets you manage assets if incapacitated. Also called and used interchangeably with a revocable trust.

• Testamentary Trust

  Created through your will and goes into effect after death. Revocable trust until the testator dies.

• Charitable Trust

  Leaves assets to non-profit organizations and provides tax deductions. An irrevocable trust.

• Spendthrift Trust

  Protects assets from beneficiaries’ creditors/lawsuits. An irrevocable trust.

• Special Needs Trust

  Allows assets to be used for a disabled beneficiary without affecting government benefits. An irrevocable trust.

Key Elements of a Trust

No matter what type of trust is used, all trusts have some key elements in common:

• Trust Property

  These are the assets that the Grantor transfers into the trust – cash, real estate, investments, etc. When property is not transferred to the trust, the trust remains ineffective.

• Trust Document

  The legal document that establishes the trust and outlines all of its terms.

Benefits of Using a Trust

Some of the biggest benefits of using a trust as part of an estate plan include:

• Avoiding Probate

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

• Controlling Distribution of Assets

  Terms can specify who gets what and when. Unlike in an estate proceeding where assets are immediately distributed, trusts can manage property for generations after the grantor dies.

• Reducing Estate Taxes

  Trusts allow you to maximize tax advantages for heirs.

• Protecting Assets

  Keeps assets safe from creditors, lawsuits, divorces, etc.

• Reduces Wealth on Paper

  Irrevocable trusts can reduce one’s assets, making them eligible for government benefits

How to Set Up a Trust

If you’re interested in setting up a trust as part of your estate plan, here is an overview of the process:

• Consult an estate planning attorney

  Get help drafting terms and creating documents. Trusts contain complex terms and provisions and cannot be done by yourself. Discuss your goals and objectives so the estate planning attorney can create a customized trust based on your needs.

• Name trustees and beneficiaries

  Decide who will manage the trust and who will benefit. Designate successor trustees and beneficiaries or a method of choosing successor trustees and successor beneficiaries in case your designated nominees are not qualified or unable to assume office.

• Draft and execute trust documents

  Customize the trust instrument for your goals.

• Transfer assets

  Transfer assets to the trust by transferring ownership from the grantor to the trustee, as a trustee of the trust.

Trusts are the preferred estate planning tool of most estate planning attorneys in New York City. It requires careful drafting and execution, especially for irrevocable trusts which usually cannot be amended after execution. Should you need legal advice or representation in the establishment of trusts, 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].