Who Owns the Property in a Revocable Trust in New York?

In a New York revocable trust, the trustee holds legal title to the trust property on behalf of the trust itself. The trustee's ownership is not personal or individual, but rather in their capacity as the trustee of the trust. This is typically reflected in the ownership documents, where the owner is listed as "[Trustee Name], as Trustee of [Trust Name]." It is important to note that although the trustee has legal ownership of the trust property, any income generated by the property is reported under the grantor's social security number for tax purposes.

A revocable trust, also referred to as a living trust, is a powerful legal instrument established by an individual, known as the grantor, during their lifetime. The grantor transfers ownership of their assets into the trust while maintaining full control and flexibility over the arrangement. This unique feature allows the grantor to amend, modify, or even revoke the trust at any point, granting them the freedom to change the trustee, beneficiaries, or trust assets as they wish without need of a cause or reason.

Although the trust assets are legally titled in the name of the trustee on behalf of the trust, the trustee is bound by the provisions outlined in the trust document. This document serves as a roadmap, meticulously detailing how the assets are to be managed, invested, and ultimately distributed both during the grantor's lifetime and after their passing. The trustee must adhere to these instructions, ensuring that the grantor's intentions are carried out faithfully. Failure to adhere to these instructions can make the trustee liable for breach of fiduciary duty.

Revocable trusts have become a cornerstone of modern estate planning, offering a trifecta of benefits: flexibility, control, and the potential to bypass the often lengthy and costly probate process. By employing this versatile tool, grantors can tailor their estate plan to their unique needs, maintain authority over their assets, and provide a seamless transfer of wealth to their chosen beneficiaries after their death without court intervention.

Trustee has the Legal Ownership of Trust Property

When a grantor creates a revocable trust and transfers their assets into it, the trustee takes on the legal ownership of those assets. In the majority of revocable trusts, the grantor acts as both the trustee and the beneficiary, streamlining the ownership transfer process from "[Grantor's Name]" to "[Grantor's Name], as Trustee of [Name of Trust]." This dual role enables the grantor to retain full control over the trust property, even after it has been moved into the trust. As the trustee, the grantor is granted the authority to manage, invest, and distribute the trust assets according to the guidelines set forth in the trust document.

It is essential to recognize that although the trustee holds legal title to the trust property, the ownership is not personal or individual to the trustee. Rather, the trustee owns the assets in their role as the trustee of the specific trust. This distinction is crucial, as it effectively separates the trust assets from the trustee's personal assets, providing protection for both the trust and the trustee. Should the trustee face personal financial hardships or legal claims, the trust assets are generally protected from those personal matters, as the trustee does not own the assets individually. By accurately titling ownership documents, the trustee guarantees that the assets are unmistakably identified as belonging to the trust, which is critical for preserving the integrity and protection of the trust structure.

Degree of Grantor's Control and Tax Implications

In a revocable trust, the grantor maintains some control over the trust assets while they are alive. This allows the grantor to manage and make decisions regarding the trust proeprty, remove assets, add assets, or modify the terms of the trust at any time. This level of control ensures that the grantor can continue to use and enjoy the trust assets during their lifetime, while still taking advantage of the estate planning benefits provided by the trust structure. Examples of the grantor's control over trust assets include selling a piece of real estate owned by the trust and reinvesting the proceeds into a new property or investment account, withdrawing funds from a trust-owned bank account for personal use or to make gifts to family members, updating the trust document to add or remove beneficiaries or change the distribution terms based on changing family circumstances, and revoking the trust entirely and reclaiming full ownership of the assets if the grantor's goals or needs change.

Despite the trust being the legal owner of the assets, the income generated by those assets is typically reported under the grantor's social security number for tax purposes. This is because, in most cases, revocable trusts are considered "grantor trusts" for income tax purposes. Under the grantor trust rules, the grantor is treated as the owner of the trust assets for income tax purposes, even though the trust is the legal owner. As a result, any income, deductions, or credits related to the trust assets are reported on the grantor's personal income tax return (IRS Form 1040). It is important to note that this income tax treatment applies only during the grantor's lifetime. After the grantor's death, the trust becomes irrevocable, and the income tax reporting requirements may change depending on the specific terms of the trust and the applicable tax laws.

Trustee's Responsibilities

When a trustee is appointed in a revocable trust, they are entrusted with a profound fiduciary duty to protect and manage the trust assets with the utmost care and diligence. The trustee must always prioritize the best interests of the beneficiaries and meticulously follow the grantor's wishes as clearly stated in the trust document. Straying from this sacred responsibility could be deemed a violation of the trustee's fiduciary obligations.

Throughout the grantor's life, the grantor usually is designated as the primary beneficiary, entrusting the trustee with the task of overseeing the trust property for the grantor's ultimate well-being. Upon the grantor's passing, successor beneficiaries step into the role formerly held by the grantor, and the once-revocable trust becomes irrevocable.

Revocable Trust Becomes Irrevocable Upon Grantor's Death

Upon the grantor's passing, the revocable trust becomes irrevocable. As such, the terms of the trust document can no longer be amended, trust property cannot be removed without consideration, and the beneficiaries can no longer be changed.

In the event that the grantor also served as the trustee, the mantle of responsibility passes to the successor trustee, whose name is designated in the trust document. To facilitate the transfer of property to the newly appointed successor trustee, the successor trustee must present a true copy of the previous trustee's death certificate, the pertinent page from the trust document that designates the succession, and an affidavit of identity, among other essential documents.

In a revocable trust (unlike an irrevocable trust), creditors can stake their claim in case the probate estate is insufficient. In New York, creditors have 7 months from the time of appointment of an executor or adminsitrator to make their claim.Should the probate estate prove insufficient to satisfy the grantor's earthly debts, the property held within the revocable trust shall be called upon to answer for these obligations.

The revocable trust is an essential estate planning tool to avoid probate and guardianship proceedings. Its creation and establishment should be made by an experienced estate planning lawyer to prevent unintended consequences.

Should you find yourself in need of assistance, we at 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].