How does a Trust in Will Work in New York City

A trust in a will is called a testamentary trust. It’s becoming more common to find trusts in wills, especially for people who don’t want to immediately distribute their property, who prefer to distribute their property in increments after death, or for those who foresee having minor beneficiaries upon their death.

What is a trust in a will?

A trust is a legal arrangement where a trustor transfers his property to a trustee, who then manages it for the benefit of the beneficiaries. Generally, trusts are immediately effective upon execution and funding of the trust. A trust in a will, however, only becomes effective upon the death of the testator and when the testator’s will is admitted to probate. If the will is not admitted to the probate, the trust in the will is ineffective, and the testator’s property is distributed in accordance with state intestate laws.

Testamentary trust vs. will

A will is a legal document executed by the testator directing the disposition of his property upon death. In a will, the distribution is immediate and in lump sum after debts are paid. In New York, seven months after the appointment of the executor and the creditors’ right to file a claim has lapsed, the executor already distributes the testator’s property.

A testamentary trust, however, allows the testator to not immediately distribute the property, and instead have it managed, and given to the beneficiaries in increments. This is especially important when the beneficiaries are minors and the testator feels that a lump sum distribution to the minors might be too much for a minor to handle.

Testamentary trusts are also popular in case there is a disabled child with special needs. This allows the parent to leave property to the child, without worrying that the disabled child might mismanage the property.

Disadvantages of a trust in a will

A trust in a will has its own disadvantages.

First, in order for a trust in a will to be effective, the will must be properly executed and admitted to probate. If the will is not admitted to probate, there can be no testamentary trust. If you expect your heirs to object to your will, the admission of your will to probate may be delayed, or worse, your will will not be admitted to probate at all. If your reason for having a testamentary trust is important, such as having a supplemental or special needs trust for a disabled child, it might be better to forego having the trust in the will, and instead, to establish a trust in an independent document.

Second, the trust in a will is not private. When the will is admitted to probate, the will becomes a public document. This treatment of the will as a public document will extend to the testamentary trust, which is contained in the will. If you prefer to keep your property and dispositions private, executing a separate trust, instead of a trust in a will, might be a better solution.

Third, the property transferred under the trust in a will does not avoid probate. One of the main reasons people execute trusts is to avoid the expensive and litigious process of probate. When you hold property as grantor, trustee, and beneficiary, when you die, the successor trustee can immediately acquire your property by simply submitting your death certificate and his affidavit as trustee, among other things. Transfers of property under trusts are easier, faster, and less expensive. If the property has to go through probate, property cannot be transferred until a petition for probate or administration is filed, and certain procedures and formalities are observed. In the case of a trust in a will, such testamentary trust does not enjoy the general characteristic of trust property, which avoids probate. This is a main disadvantage of a trust in a will.

A trust in a will, or testamentary trust, can be a cheaper alternative to having an independent trust because your attorney can simply incorporate the trust in the will’s provisions. Writing a separate trust document may be more expensive in terms of initial costs. Ultimately, what trust to use will depend on your estate planning objectives. An estate planning attorney can give you better perspective on whether a trust in a will is a suitable option for your needs.

Should you need assistance in executing a trust, the Law Offices of Albert Goodwin are here for you. We have offices in New York City, Brooklyn, NY and Queens, NY. You can call us at 212-233-1233 or send us an email at [email protected].

Can a will override an existing trust?

A trust in a will should not be confused with the question of whether a will can change a trust you already have. In most cases, a will does not override a trust in New York. A will controls only your probate estate — property titled in your individual name at death with no surviving co-owner or beneficiary designation. Property you validly transferred to a trust during life belongs to the trustee, not to you individually, so it falls outside the will's reach.

There are limited exceptions where a will can affect trust property:

• Powers of appointment. A trust may grant a person the power to appoint trust property, often exercisable "by will," governed by EPTL Article 10. Under EPTL 10-6.1, a general residuary clause is presumed not to exercise a power of appointment unless the will refers to the power or the property, or otherwise shows an intent to exercise it.
• Trust terms authorizing amendment or revocation by will. If a revocable trust expressly states it may be amended or revoked by a later will, a will that meets the trust's stated method may do so.
• Property never actually transferred to the trust. If you intended to fund a trust with an asset but never retitled it, that asset stays in your individual name and passes under your will.

Whether a trust can be changed at all depends on its character. Under EPTL 7-1.16, a lifetime trust is presumed irrevocable unless its terms expressly reserve the power to revoke or amend. Irrevocable trusts can be changed only through limited mechanisms, such as trustee decanting under EPTL 10-6.6, amendment with the written consent of the creator and all beneficiaries under EPTL 7-1.9, or court proceedings. A later will cannot override an irrevocable trust. In addition, EPTL 7-1.17 requires a lifetime trust and any amendment to be in writing, executed by the creator, and either acknowledged before a notary or signed in the presence of two witnesses who also sign. A will executed under EPTL 3-2.1 does not automatically satisfy these trust formalities, which is one reason a will generally cannot amend a trust.

Pour-over wills: another way to combine a will and a trust

Instead of placing the trust inside the will, many New Yorkers use the reverse structure: a revocable living trust as the main vehicle, paired with a pour-over will that directs any assets left in your individual name at death into the trust. New York recognizes pour-over gifts under EPTL 3-3.7, which validates a testamentary disposition to the trustee of a trust identified in the will.

A pour-over will is a safety net, not a substitute for funding the trust. Anything caught by the pour-over provision still passes through Surrogate's Court probate before it reaches the trust. Unlike a testamentary trust, however, the trust itself exists independently of the will and does not depend on the will being admitted to probate.

Coordinating your will with trust property and beneficiary designations

Funding a trust can quietly cancel a gift in your will through a doctrine called ademption. A specific bequest fails if the property is no longer in your probate estate at death. For example, if your will gives your house to your niece and you later deed that house into your revocable trust, the house belongs to the trust at your death — the gift to your niece is adeemed, and she takes nothing under that clause unless the trust provides for her. New York courts apply ademption by extinction to specific bequests, which is a strong reason to review both documents together whenever you fund a trust.

Certain assets pass by contract or by operation of law and are controlled by neither a will nor a trust:

• Retirement accounts such as IRAs, 401(k)s, and 403(b)s
• Life insurance and annuities
• Payable-on-death and transfer-on-death accounts
• Property held in joint tenancy with right of survivorship or as tenants by the entirety

A beneficiary designation generally controls regardless of what your will or trust says, so a single outdated form can defeat your estate plan. These designations should be reviewed alongside your will and any trust provisions.

Who manages a trust in a will: the trustee

When a will contains a testamentary trust, it names a trustee — the person or institution responsible for holding and managing the trust property after the testator dies. The trustee's job is different from the executor's. The executor probates the will, collects the assets, pays debts and expenses, and distributes what remains under Letters Testamentary. The trustee takes the portion of the estate the will directs into the testamentary trust and manages it, often for years, according to the terms the testator wrote into the will. The executor's work comes first; the trustee's role begins only once the trust is funded. New York law allows the same person to serve in both roles, but that person must account separately for each capacity.

The trustee nominated in the will qualifies by petitioning the Surrogate's Court for Letters of Trusteeship under the Surrogate's Court Procedure Act. The court reviews the nominee's eligibility under SCPA 707, which disqualifies, among others, infants, incompetents, non-domiciliary aliens (subject to exceptions), felons, and persons the court finds unfit by reason of dishonesty, improvidence, or substance abuse. If the named trustee declines, dies, or cannot serve, the court appoints a successor — either an alternate named in the will or, failing that, a fiduciary chosen by the court under SCPA 1502. Only once Letters of Trusteeship are issued does the trustee have legal authority to act for the trust.

The trustee's duties and compensation under New York law

A testamentary trustee is a fiduciary held to the highest standard of conduct New York law recognizes. Core duties include:

• Duty of loyalty. The trustee must administer the trust solely in the interest of the beneficiaries and avoid self-dealing and conflicts of interest.
• Statutory powers. EPTL 11-1.1 grants trustees broad powers to invest, sell, lease, and manage trust property, collect income, pay expenses, and distribute assets — unless the will restricts or expands them. The will controls; the statute fills the gaps.
• Prudent investment. Under the New York Prudent Investor Act (EPTL 11-2.3), the trustee must invest and manage trust assets as a prudent investor would, considering the trust's purposes, terms, and distribution requirements, and must diversify investments unless special circumstances make it imprudent.
• Duty to account. The trustee must keep accurate records and, when required, render a formal accounting to beneficiaries and the court under SCPA Article 22.
• Duty of impartiality. Where there are income beneficiaries and remainder beneficiaries, the trustee must balance their competing interests fairly.

Unless the will provides otherwise, a New York testamentary trustee is entitled to statutory commissions under SCPA 2309, calculated on principal received and held and on income under a graduated annual schedule, with a separate paying-out commission on distributions of principal. A will can set a different fee, waive commissions, or appoint a trustee who serves without pay. A person serving as both executor and trustee may be entitled to commissions in each capacity, subject to the limits in SCPA 2309 and 2307.

How long the trust lasts and how a trustee can be removed

A common misconception is that a testamentary trust lasts "21 years." That is an inaccurate framing of New York's rule against perpetuities under EPTL 9-1.1, which provides that a trust interest must vest, if at all, no later than 21 years after one or more lives in being at the creation of the trust. The actual duration of any particular trust depends on the terms the testator wrote — for example, a trust may direct distribution when a child reaches age 25, or may continue for the lifetime of a beneficiary. The perpetuities rule sets an outer boundary; it is not a fixed lifespan.

If a trustee mismanages the trust, a beneficiary or co-fiduciary may petition the Surrogate's Court to suspend, modify, or revoke the trustee's letters under SCPA 711 and 719. Grounds include wasting or improvidently managing trust property, dishonesty, refusing to account, conflicts of interest, or otherwise being unfit to continue. The court may also surcharge a trustee — order the trustee to personally repay losses caused by a breach of fiduciary duty. Our firm regularly handles accounting proceedings and fiduciary removal litigation in the Surrogate's Courts.