Many people have preconceived notions about trusts and believe that they are only for multi-millionaires who wish to leave large trust funds to their children. However, this is far from the truth; trusts can be invaluable tools in the estate plans of millions of individuals.
Trusts are simply an arrangement where one party holds property on behalf of another party. In an estate planning context, trusts are created by the person doing the estate planning (the “settlor”), who authorizes another person (the “trustee”) to manage the assets for the benefit of a third party (the “beneficiaries”). There are many reasons for establishing trusts including tax minimization or providing for the needs of underage beneficiaries.
Some types of trusts that may be useful in estate planning are:
- Trusts for minors. Many people leave money to their children or their grandchildren in a trust as part of a comprehensive estate plan. This is typically done to ensure the money is there for the children’s benefit while they are younger-for support, education, medical expenses, etc. Once the children reach a certain age or achievement level (such as obtaining a bachelor’s degree), they may receive money from the trust to do with as they please.
- Special needs trusts. Special needs trusts are tools that enable a person to leave property to an individual with special needs. Many individuals with special needs receive government benefits. If they were to suddenly inherit money, they would be disqualified in most cases from those benefits until the inheritance was spent. Special needs trusts protect those individuals’ government benefits while allowing them to have money for any extras they may need.
- Marital trusts. Married couples sometimes include trusts in their wills, or separately, for the benefit of their spouse, typically for two reasons: (1) taxes, and (2) property protection. In previous years, marital trusts were needed for some couples to take advantage of estate tax exemptions, and they may be needed in the future as the laws are expected to change. Marital trusts can also protect property from a spouse to ensure that it ultimately goes where it needs to go. For example, a husband with grown children from a previous marriage may decide to let his wife use his property after he passes, but puts it into a trust so that after she passes away it goes to his children.
- Revocable living trusts. Revocable living trusts are documents completely separate from wills although they often work hand in hand with wills to carry out the decedent’s wishes. Revocable living trusts are primarily used to avoid probate in states where probate is particularly cumbersome, or in a few other instances, such as when a person owns real estate in multiple states.
- Irrevocable life insurance trusts. Irrevocable life insurance trusts (or ILIT’s) can be used in order to move a person’s life insurance proceeds outside his or her estate for estate tax purposes.
- Medicaid Asset Protection Trust:
As you can see, there are many different types of trusts, each of which can be customized to serve a valuable purpose in accomplishing the wishes of those making gifts or planning an estate. An experienced estate planning attorney can help you assess your finances and goals to determine the best vehicles to preserve your wealth and your legacy.
Advantages Of The Irrevocable Trust In New York
- Avoiding probate. If the settlor dies, there is no need for probate. The transfer is much simpler than when there is a testate succession.If leave your estate to your loved ones using a will, everything you own will pass through probate. The process is expensive, time-consuming and open to the public. The probate court is in control of the process until the estate has been settled and distributed. If you are married and have children, you want to make certain that your surviving family has immediate access to cash to pay for living expenses while your estate is being settled. It is not unusual for the probate courts to freeze assets for weeks or even months while trying to determine the proper disposition of the estate. Your surviving spouse may be forced to apply to the probate court for needed cash to pay current living expenses. You can imagine how stressful this process can be. With proper planning, your assets can pass on to your loved ones without undergoing probate, in a manner that is quick, inexpensive and private.
- Avoid the risks of placing assets in the name of children. Instead of leaving assets and other property in the name of children, through the irrevocable trust it can be stipulated that they will be transferred once those children reach a certain age.
- Inheritance tax planning. Once the trust is created the assets are part of the trust and you control them. This means that the former owner of the assets will not owe tax on the assets held in the trust during their lifetime nor are they part of the taxable estate at death.
- Estate planning in the event of disability. If there is a family member with a disability, they can be assured of a financial situation without preventing them from continuing to receive government assistance.
- Peace of mind about the future. If you want to secure your future or a nursing home stay, a trust is a good way to do it. Plus, you won’t pay taxes in the interim.
- Protect yourself from lawsuits, judgments or other litigation. If you work in a profession where there may be claims such as medicine or law, the irrevocable trust could protect your assets from a lawsuit. The same in case you have debts, as this figure could protect you from creditors.
Disadvantages Of The Irrevocable Trust In New York
- Inflexible structure: there is no going back, no room for maneuver. After transferring the assets to the trust, control over the assets is lost. In some cases, a semi-flexible structure can be left if the trustee is given permission to make changes or if those assets are transferred to another trust. To look at different options, it is advisable to seek advice from an experienced trust lawyer who can give you a clearer picture.
- Loss of control over the assets: Once the assets and property are transferred to the trust, you will not have the control to recover or manage them. However, depending on how the trust is organized, you may receive income from the trust. In the event that you are in financial distress, you will no longer be able to access those assets, even to sell them. This is something to keep in mind when deciding on an irrevocable trust.
- Unforeseen changes: One of the advantages of an irrevocable trust is that you can secure your future, that of your spouse, children, grandchildren, and disabled family members, among others. However, planning also has a palpable disadvantage. You will not be able to take care of unforeseen events that you may have in life since you decide to create the trust and transfer your properties, assets, and goods. In that sense, keep in mind that if you decide to create an irrevocable trust, you will not be able to change it later to align it with the circumstances you are living in.