When planning for our financial and personal futures and the futures of our loved ones, we often think about making a will, but do not think about trusts. Many of us are simply not familiar with trusts and do not consider them as essential to estate planning. However, estate planning should be a comprehensive process that includes several tools that when combined will help you achieve your planning goals. In addition to a last will and testament, a trust is an important and powerful estate planning document. A trust is a legal arrangement in which property is held by the trust and managed by the trustee. When you create a trust you transfer your property to it. The trustee who you designate would then hold legal title to the trust property. A trust is an attractive estate planning tool that offers several benefits when compared to a will. A Nassau County Trust Administration Lawyer can educate you on trusts and trust administration, as well as answer other challenging questions regarding estate planning.
A trust can be a testamentary trust or a living trust. A living trust, also referred to as an inter vivos trust, is created and funded while you as the grantor are still alive. On the other hand, a testamentary trust is created and funded upon your death.
Like a will, with a testamentary trust you can leave assets to your loved ones. However, unlike a will, a trust does not have to go through probate. Probate is the legal process through which the executor of an estate winds up the affairs of a deceased person and distributes the estate's assets according to the deceased's will. Probate often can delay the distribution of estate assets for weeks, months, and even years, potentially causing your beneficiaries financial hardship. A trust allows for the relatively speedy distribution of trust property to the beneficiaries you designate. Because of the costs associated with probate that are paid from estate assets, with a will the value of estate assets available for beneficiaries is often significantly diminished. Furthermore, the trust administration process is more private than the probate administration process. Once a will is submitted to the New York Surrogate's Court for probate, it becomes public record. Since trusts do not go through probate they are not open to public scrutiny.
Trust Agreement and PropertyThe legal document that establishes the trust is called the trust agreement. It details the terms of the trust including naming the trustee, successor trustee, and beneficiaries. It will also set out the rules for administering the trust.
The way a trust if funded is by placing property into the trust. That property is called the principal. The property of the trust is anything that you chose to give to your beneficiaries. Property that is commonly placed into trusts include money, securities, jewelry and real estate.
The provisions of the trust are the details of how you want the goals of your trust carried out. For example, the trust may spell out at what intervals cash is to be distributed to the beneficiary and in what amounts. It may also detail the conditions under which property is transferred. For example, it is common for a parent or grandparent to place property in trust for a minor with the condition that the property is to be distributed upon the beneficiary reaching age 21 or completing college.
The specific provisions of your trust will also depend on the type of trust. For example, the provisions of a trust that has beneficiaries who are minors may be different from a trust that has adult beneficiaries.
TrusteeThe trustee is responsible for carrying out the terms of the trust. The trustee can be one or more individuals, or can be a company. Because of the significant amount of responsibility the trustee will have and because your finances and the finances of your beneficiaries are at risk, it is important to carefully select the person or what company who will fill this role. A trustee can be paid for performing trustee responsibilities.
You should also name a successor trustee. This would be the person who will step into the role of the trustee if the primary trustee is unable or unwilling to serve or continue to serve as the trustee. The responsibilities of the successor trustee are the same as the original or primary trustee. However, the successor may only perform trustee duties once the primary trustee is no longer acting as trustee.
With a living trust you can appoint yourself as the trustee and name someone who you trust as your successor trustee. Appointing yourself as the trustee allows you to maintain control over assets and trust administration during your lifetime if you so chose. Upon your death, the named successor trustee with take over trust administration responsibilities.
Duties of the TrusteeThe trustee is responsible for the day-to-day administration of the trust and the assets held by the trust. Trust administration duties will vary depending on the type of trust, the type of beneficiaries, and the type of assets held by the trust. Trust administration duties may include ensuring that the trust property is preserved, distributing assets to the beneficiaries or on behalf of the beneficiaries, paying trust debts, investing trust property, filing tax returns on behalf of the trust, and providing beneficiaries with an accounting of the management of trust assets.
In addition to routine trust administration activities, managing a trust can sometimes involve complex legal and tax issues that are best resolved with the help of an experienced New York trust administration lawyer. For example, at times a trust may need to be redrafted if there was an error in how it was executed, if it is not providing the tax benefits envisioned, or if it is not in compliance with New York law. This process is known as "trust reformation."
Types of TrustsThere are several different types of trusts established to accomplish different goals. Trusts can be inter vivos or testamentary. A trust can be revocable or irrevocable. A revocable trust can be changed, while an irrevocable trust cannot be changed. Examples of types of trusts include:
Educational trust. The property in an educational trust is earmarked specifically for educational expenses. The terms of the trust will specify the conditions under which the funds can be used for educational expenses. For example, the trust funds may only be used to pay for 4 years of college tuition. Or the beneficiary may be required to maintain a certain grade point average to continue to receive funds from the trust. In administering the trust the trustee would disburse the funds to pay for appropriate educational expenses.
Minor child trust. A trust that is set up with a minor as the beneficiary allows a gift to be given to the minor with an adult, the trustee, controlling the funds. This type of arrangement allows a minor to have limited access to trust property, without controlling the trust assets since minors do not have the maturity to properly manage money, particularly if the assets are substantial. The role of the trustee in administering a trust for a minor child is to determine how the funds can be used to benefit the minor based on the terms of the trust. For example, the trust may provide that the funds are to be used for the minors health, welfare and education. So, paying for the child's private school tuition would be appropriate. The trust can be set up so that once the minor reaches majority, the trustee transfers trust property to the beneficiary.
A minor child trust is often a testamentary trust created upon the death of the minor's parents or grandparents. Minor child trust are also often created when a child earns or wins a substantial amount of money, such as in the case of a child actor.
Spendthrift trust. A spendthrift trust is designed to protect the assets of a beneficiary who is not able to properly manage his or her own affairs. The beneficiary may be a family member who is mentally incompetent. The beneficiary could also be a family member who has a history of making questionable decisions with finances. In administering this type of trust, the trustee may be responsible for paying the beneficiary's bills or making large purchases such as buying a car or real estate. However, the beneficiary's creditors are unable to access the trust property. The trustee may also distribute the funds to the beneficiary in regular intervals in the form of an allowance.
Generation-skipping trust. A generation-skipping trust is designed to allow you to transfer assets tax-free to your grandchildren. This type of trust allows the grantor to avoid the estate taxes that would apply if the assets were first transferred to the your children.
Special needs trust. A special needs trust is set up to support a beneficiary who has a disability. Assets can be used to cover a variety of expenses such as medical expenses, rehabilitation, special equipment, training, companions, recreation, insurance, and quality of life enhancing expenses. They are also used to protect the beneficiary's eligibility for governmental benefits such as Supplemental Security Income and Medicaid, while at the same time leaving the beneficiary property. It is up to the trustee to administer the trust so that only eligible expenses are paid out of trust funds.
There are also other types of special trusts for specific things such as funeral and burial expenses, real estate, life insurance and pension benefits. While some trusts are relatively easy to set up and straightforward to administer, others are quite complicated.
If you have concerns about how to set up a trust, how to administer a trust, or how a trust that you current have is being administered, contact Stephen Bilkis and Associates. We have years of experience with the New York Surrogate's Court handling trust administration issues, as well as many other issues related to estate planning . We will advise you on the best course of action for your specific trust administration concern. Contact us at 800.696.9529 to schedule a free, no obligation consultation regarding your estate plan.