A living trust is also known as an inter vivos trust or a revocable trust. It is a trust that is made during your lifetime and involves transferring assets into the trust and naming a trustee to manage those assets. Usually, the trust creator or settlor is the initial trustee and a backup trustee is named. Trust beneficiaries who will inherit the living trust after the death of the settlor are also named.
This type of trust is created by preparing a trust document with the help of your attorney. The process will involve naming a trustee and backup trustee and designating a beneficiary. In order for a living trust to accomplish its goals, you must fund the trust by transferring assets into it. The revocable trust will become the legal owner of the assets transferred into it, instead of you being considered the legal owner of the assets.
Revocable trusts are generally modifiable and revocable, so you have flexibility when you create this kind of trust. You must follow the New York requirements for trust creation in order to ensure you create a valid trust which offers advantages that you desire.
There are many reasons why it may make sense for you to create a living trust. One of the biggest reasons why they are created is to avoid probate. The ABA indicates revocable trusts are one of the two most popular probate avoidance methods; joint tenancy or survivorship is the other.
Avoiding probate means there will be less costs faced by your family members and estate during the probate process. You can save a substantial amount of money by not having to go to court. You can also facilitate the transfer of the assets that you put into the trust in a more timely manner. Probate can stretch on for months, during which time there may be uncertainty about business interests and during which time investments and property may not be managed as carefully as they would by new owners. A revocable trust eliminates this period of uncertainty because trust assets can quickly transfer to new owners.
Living trusts can also help you to make sure that your assets are appropriately cared for in case of incapacity. By naming a backup trustee in your trust document, you vest authority in that backup trustee to take control over trust assets in the event something happens to you. You will not need to worry about your family having to initiate guardianship proceedings while trust assets remain unmanaged.
While all of these reasons are very good reasons to create a living trust, it is important to understand limitations of this type of trust. For example, assets held within a living trust are still considered resources which can be spent on nursing home care, so you may not be able to get Medicaid to pay for coverage until you have spent down assets. The trust assets also are considered part of your taxable estate, which can trigger federal estate taxes and New York estate taxes. If Medicaid planning and/or estate tax planning are part of your goals, speaking with estate planning attorney about the alternatives available is a must.