My clients often are well aware of what a Last Will and Testament is, and its purpose of provide for their wishes when they pass away. They also know that trusts exist but are not sure what they are or what a trust does. The focus of this blog will be on Living Trusts, also known as Revocable Trusts. A Living Trust is made during your lifetime and can be very helpful relating to the administration of your assets while you are still alive and after you pass away.
A Living Trust is a special kind of trust wherein the creators maintain control over the assets placed in the trust during their lifetime and also sets the terms by which the assets are distributed when the creators pass away. The trust document will name the initial trustees (usually the creators) and specify backup trustees in the event the initial trustees pass away or lose their capacity. Living Trusts are generally modifiable and revocable, so there is flexibility relating to amending the distribution terms of the trust and/or the appointment of backup trustees.
Almost anything can be placed into a Living Trust, if there is a value of any kind it can be transferred into the Trust. The Trust can open a bank account and own its own property. Some examples of property creators may transfer into the Living Trust:
- Real Estate
- Checking and Savings Accounts
- Fine Art and Jewelry
- Personal Property
- Business Interests
- Investment Accounts
- Intellectual Property
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 the probate process when the creator(s) pass away. Avoiding probate means there will be less costs faced by your family members and estate during the probate process. Your beneficiaries can save a substantial amount of money by not having to go to court by saving on court fees and attorney fees relating to the probate process. You can also facilitate the transfer of the assets that you put into the trust to the beneficiaries in a more timely manner. Probate in New York will stretch on for months, and in rare cases years, 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 Living Trust eliminates this period of uncertainty because trust assets can quickly transfer to the creator(s) beneficiaries and allow the beneficiaries to enjoy their inheritance in a swift manner.
Avoiding probate is a worthy venture for those individuals that own properties in multiple states, for instance “snow-birds” who winter in a condo in Florida and come back to a home or condo in New York when the weather warms up. When the individual dies probate will need to be initiated in both New York and Florida to pass each piece of real estate from the estate to the beneficiaries of the estate. A Living Trust would allow the family to avoid multi-state probate so long as ownership of the properties is transferred to the Living Trust during the creator’s lifetime.
Living Trusts can also help ensure that the creator’s assets are appropriately cared for in case of incapacity. By naming a backup trustee in the trust document, the creator vests authority in that backup trustee to take control over trust assets in the event something happens to the creator’s capacity. There is no need to worry about the family having to initiate guardianship proceedings while trust assets remain unmanaged, the backup trustee would simply move into the trustee position upon the creator’s incapacity.
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 and are available to any potential creditors of the creator. The trust assets also are considered part of the creator’s 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.