Why Set Up a Trust in New York City?

Setting up a properly structured trust is one of the wisest financial decisions you can make for yourself and your loved ones. Trusts provide many benefits that simply writing a will cannot accomplish.

The type of trust to establish will depend on your objectives and goals.

A revocable trust allows you to modify or terminate the trust at any time should your circumstances or intentions change. A revocable trust usually has the grantor, beneficiary, and trustee as one and the same person. With this method, it allows the grantor-beneficiary flexibility, and control over the property. Upon death, a revocable trust then becomes irrevocable.

Revocable Trust

A revocable trust provides:

• Flexibility

  You maintain control and can modify or terminate the trust if circumstances change.

• Convenience

  Assets transfer to beneficiaries without probate when you pass away.

• Privacy

  Trust assets and distributions remain private, unlike wills.

• Incapacity planning

  Avoids need for conservatorship if you become incapacitated.

An irrevocable trust, on the other hand, can’t be changed or reversed once created, though some modifications can be made through trust decanting. Trust monitors can also oversee the trustee’s management of the trust to prevent issues of abuse.

Irrevocable Trust

An irrevocable trust provides:

• Asset protection.

  Can protect assets from creditors and legal judgments.

• Tax planning

  If structured properly, can minimize taxes.

• Medicaid qualification

  Allows you to qualify for Medicaid while preserving assets.

Revocable trusts allow control while you are living, while irrevocable trusts enable more advanced strategies like tax planning and asset protection. We can discuss your goals with you to decide which type of trust best meets your needs. Should 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].

Trust Versus Will: What Each Does

Many people think a will and a trust are interchangeable tools that do the same thing. They are not. A will is a directive that takes effect only at death and only after the will has been admitted to probate by the Surrogate's Court. A trust is an arrangement that can take effect immediately and operates outside the probate court entirely. Both can serve as the foundation of an estate plan, but they accomplish different things.

A will does the following well: nominates an executor, nominates a guardian for minor children, distributes property that you own at death in your sole name, can create testamentary trusts that come into existence at your death. It does not avoid probate, does not provide privacy (probate filings are public), does not function during your lifetime if you become incapacitated, and does not provide asset protection during your lifetime.

A trust does the following well: avoids probate for assets that are titled in the trust's name, provides privacy, can continue managing assets through your incapacity, can hold assets for the benefit of children and others over long periods, and (in the case of irrevocable trusts) can provide asset protection. It does not by itself nominate a guardian for minor children — that still needs to be done in a will (often called a pour-over will when used in conjunction with a trust).

Specific Reasons People Create Revocable Trusts

Probate avoidance is the most common reason. A New York probate proceeding can take several months for a straightforward estate and over a year for a complex one. Filing fees, attorney fees, and the time of the family all add up. Real estate cannot be sold by the family until letters testamentary are issued. Bank accounts cannot be accessed. A revocable trust funded during life completely sidesteps this process. The successor trustee can deal with the trust's assets immediately upon the grantor's death.

Privacy is the second common reason. Wills become public documents when filed for probate. Anyone can go to the Surrogate's Court and read what the deceased left behind, to whom, and in what amounts. Trusts are private documents. Beneficiaries receive notice and copies, but the general public has no access.

Incapacity planning is the third common reason. A revocable trust with a successor trustee allows the trust's affairs to continue seamlessly if the grantor becomes incapacitated. The successor trustee steps in and manages the trust's assets without any court involvement. Without a trust, the same situation typically requires an Article 81 guardianship — a public, expensive, and time-consuming court proceeding.

Multi-state asset management is the fourth reason. A grantor who owns real estate in New York and Florida and Massachusetts would otherwise need three probate proceedings at death. A trust holding all three properties handles them in one administration.

Specific Reasons People Create Irrevocable Trusts

Medicaid asset protection is one of the most common reasons. By transferring assets into an irrevocable Medicaid asset protection trust more than five years before applying for institutional Medicaid, the grantor preserves the assets for the family while becoming eligible for benefits to cover long-term care costs that would otherwise consume the assets.

Federal and New York estate tax planning is another important purpose. Irrevocable life insurance trusts (ILITs) hold life insurance policies outside the grantor's estate so the death benefit is not subject to estate tax. Spousal Limited Access Trusts (SLATs) allow married couples to use the federal lifetime gift exemption while preserving indirect access through the spouse. Grantor Retained Annuity Trusts (GRATs) freeze the value of appreciating assets at current values. Each of these has specific rules and is appropriate in specific situations.

Asset protection from creditors and divorce. An irrevocable trust funded with the grantor's assets, with the grantor not retaining the right to revoke or control the trust, places those assets out of reach of the grantor's future creditors. The specific rules about how far this protection extends depend on state law and the structure of the trust.

Special needs planning. A special needs trust holds assets for a disabled beneficiary while preserving the beneficiary's eligibility for SSI, Medicaid, and other means-tested benefits. Parents of children with disabilities frequently use these trusts to provide ongoing support without disqualifying the child from government programs.

Generation-skipping and dynasty trusts. Trusts that hold assets for multiple generations — children, grandchildren, and beyond — can take advantage of the federal generation-skipping transfer tax exemption to move significant wealth to younger generations without intermediate tax events.

Funding the Trust

Creating a trust document does not automatically fund the trust. The grantor must transfer specific assets into the trust by retitling them in the trust's name. Real estate is transferred by recording a new deed. Bank accounts are retitled. Brokerage accounts are reregistered. Vehicles are retitled. Business interests are reassigned through assignment documents.

The "unfunded trust" problem is one we see often. A grantor signs a trust document but never actually transfers any assets in. When the grantor dies, the trust holds nothing. The assets are still in the grantor's individual name and have to go through probate. The trust document accomplishes nothing because it was not funded. Funding is the essential second step after creating the trust document, and it needs to happen during life.

Pour-Over Wills

Trust-based estate plans typically include a "pour-over will." This is a short will that covers any assets the grantor failed to transfer into the trust during life. The pour-over will directs that any such assets be transferred into the trust at death, where they can then be administered according to the trust's terms. The pour-over will is a safety net — it catches assets that were forgotten or acquired late — but it does not avoid probate for those assets. The whole point is to minimize what flows through the pour-over by funding the trust completely during life.

Trustee Selection

Trust planning requires thoughtful trustee selection. For a revocable trust, the grantor typically serves as initial trustee and names successor trustees who will take over at the grantor's incapacity or death. For an irrevocable trust, the trustee should generally not be the grantor (because that would defeat the trust's planning purpose) and should be someone who can be trusted to administer the trust over potentially many years.

Common trustee choices include adult children, siblings, trusted friends, professional trustees (attorneys or financial advisors who serve in fiduciary capacities), corporate trustees (bank trust departments or trust companies), and private trust companies. Larger or longer-term trusts often benefit from a corporate trustee or co-trustee structure for continuity and professional administration.

Costs and Maintenance

Setting up a trust costs more than writing a basic will. The trust document itself, the deeds transferring real estate into the trust, the various retitling documents, and the coordinated estate plan all involve legal time. For most clients, the upfront cost is recouped many times over by the probate savings, the privacy, and the planning flexibility the trust provides. But it is real money out of pocket at the planning stage, and the cost should be weighed against the benefits in light of the client's specific situation.