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.
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.
There are three key roles in a trust:
In some trusts, a trust protector is appointed to oversee and monitor the trustee’s actions to prevent abuse.
Generally, there are only two types of trusts: revocable and irrevocable. Under this general classification are several subclassifications.
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.
Cannot be changed once executed. Provides tax advantages and asset protection. Used for Medicaid asset protection and eligibility for government benefits.
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.
Created through your will and goes into effect after death. Revocable trust until the testator dies.
Leaves assets to non-profit organizations and provides tax deductions. An irrevocable trust.
Protects assets from beneficiaries’ creditors/lawsuits. An irrevocable trust.
Allows assets to be used for a disabled beneficiary without affecting government benefits. An irrevocable trust.
No matter what type of trust is used, all trusts have some key elements in common:
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.
The legal document that establishes the trust and outlines all of its terms.
Some of the biggest benefits of using a trust as part of an estate plan include:
Assets in a trust don’t pass through probate, which saves time and legal costs in New York.
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.
Trusts allow you to maximize tax advantages for heirs.
Keeps assets safe from creditors, lawsuits, divorces, etc.
Irrevocable trusts can reduce one’s assets, making them eligible for government benefits
If you’re interested in setting up a trust as part of your estate plan, here is an overview of the process:
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.
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.
Customize the trust instrument for your goals.
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].