A trust is a document that creates a fiduciary arrangement authorizing a trustee to hold and manage assets on behalf of the beneficiaries of your choice. It is an estate planning device that has some of the same features as a will, but also has some very significant differences. This means that in order to reach your estate planning goals it may be a good idea to have both a will and a trust. In administering a trust, the trustee must strictly follow your instructions that you included in the trust document. For example, the trust document will specify who the beneficiaries are and how the assets in the trust are to be spent for the benefit of those beneficiaries. Furthermore, the duties of the trustee will be outline in the document and prescribed by law. Such duties may include maintaining accurate records, paying taxes, investing trust funds, and making distributions to or on behalf of trust beneficiaries. A trust is an attractive estate planning tool that offers several benefits that will achieve certain estate planning goals that a will cannot. A Westchester 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 that person's assets according to the instructions left in a will. Probate often can delay the distribution of estate assets for weeks, months, and even years, potentially causing 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. This means that anyone can search public records and find out the contents of the will, including the size of your estate and how much each beneficiary is to receive. Since trusts do not go through probate they are not open to public scrutiny.
How is a trust property managed?The 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 includes 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. Or the trust may state that a portion of the assets are to be distributed at age 21 and the balance at age 30. There is great flexibility as to the terms and conditions that you place upon when beneficiaries can have access to trust assets.
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.
What does the trustee do?The trustee is responsible for carrying out the terms of the trust. The trustee can be one or more individuals, or can be a company. If you name more than one trustee, they are collectively referred to as co-trustees. 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. While a trust can be paid for his or her work as a trustee, trustees who are family members sometimes perform the trustee duties with expectation of being paid.
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, unlike co-trustees, a successor trustee 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 will take over trust administration responsibilities.
The trustee is responsible for the day-to-day administration of the trust and its assets. Trust administration duties will vary depending on the type of trust, the size of the 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."
Are the different types of trusts?There 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. If you want to put aside money for someone's educational expenses, you can do that with an educational trust. The beneficiary of the trust can be your child, your grandchild, or any other person that you name. 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 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 common type of trust is a minor child trust. Suppose, for example, that you have a 5-year old child. If you want to set aside money for your child, you can do so using a minor child trust. While your child will be the beneficiary of the trust assets, the child will not be able to access the funds or have control over the funds until the child becomes an adult. 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 minor's 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.
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. A spendthrift trust is different from a minor child trust. The beneficiary of a spendthrift trust is not a minor, but typically someone who is mentally incompetent or someone 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.
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. The feature that distinguishes a special needs trust from other types of trust is that they are designed 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. Setting up a trust incorrectly can result in the goals of the trust not being reached as well as significant financial and tax consequences. If you are considering setting up a trust, need guidance on how to administer a trust or have concerns about how your trust is being administered, contact Stephen Bilkis & Associates, PLLC. Our staff has years of experience working closely with trustors, trustees, beneficiaries and the New York Surrogate's Court on issues related to establishing and administering trusts. Contact us at 800.696.9529 to schedule a free, no obligation consultation regarding your estate plan.