Bronx Trust Administration

When planning for our financial and personal futures and the futures of our loved ones, creating a trust may not immediately come to mind. While most people understand how wills work, many people do not understand trusts and how a trust may help them reach their estate planning goals. A trust is a legal arrangement in which property is held by the trust for the benefit of beneficiaries named in the trust agreement, and managed by a trustee whom you designate. When you create a trust you transfer legal title of your property to it. In the trust agreement you can then specify how the trust is to be managed and under what circumstances the trustee may distribute assets to your beneficiaries. A Bronx Trust Administration Lawyer can explain to your how trusts work and also answer other challenging questions regarding estate planning.

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Difference Between a Trust and a Will

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 or trustor are still alive, while a testamentary trust is created and funded by your will upon your death.

Like a will you can use a trust to leave property to your loved ones after you pass away. However, unlike a will, a trust can be set up so that the property used to fund it 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 property to his or her beneficiaries according to the terms of the deceased's will. Probate often can significantly delay the distribution of estate assets. In New York probate typically takes at least 9 months and often takes substantially longer than that. 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 can be somewhat diminished during probate. 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. Anyone can get a copy of a will and learn details of the value of your estate and who your beneficiaries are. On the other hand, since trusts do not go through probate they are not open to public scrutiny unless the trust is the subject of litigation.

Trust Agreement and Property

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 instructions for administering the trust including when and how assets are to be distributed.

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, you can establish a truly solely to fund your child's education. The terms of the trust might say that distributions are only to be made directly to your child's college to pay for tuition.

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. If the trust was created to provide for a disabled relative, then the terms may include specific reasons that trust assets may be used such as for assistive technology or an aide.

Trustee

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 referred to as co-trustees. Because of the significant amount of responsibility the trustee will have and because your financial health and the financial health of your beneficiaries are at stake, it is important to carefully select the person or what company who will fill this role.

You should also considering naming 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 a co-trustee a successor may only perform trustee duties once the primary trustee is no longer acting as trustee. If you do not name a successor trustee, should the primary trustee step down the court will appoint a successor.

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.

While a trustee are entitled to receive compensation, if the trustee is a family member he or she may not a accept fee. However, if the trustee is a bank, attorney, or corporation, the trustee's fee is typically a percentage of the funds under management.

Duties of the Trustee

The trustee is responsible for the day-to-day administration of the trust and the assets held by the trust. Trust administration duties generally involve more that simply distributing funds to beneficiaries. Trust administration duties will vary depending on the type of trust, the needs of the beneficiaries, and the type of assets held by the trust. The terms of the trust provide an important roadmap as to how a trustee is required to manage the trust account for the benefit of the trust's beneficiaries. Routine 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.

If the trust is a specialized trust such as a special needs trust, part of the responsibilities of a trust administrator is to understand and apply relevant government regulations such as laws related to Medicaid.

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 Manhattan 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 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. However, if there was an error in the trust document such that the trust executed did not reflect the intent of the grantor, an irrevocable trust can be changed. For example, in the case of In the Matter of the Application of Genevieve D. Scheib, 836 N.Y.S.2d 489 (2007), the petitioner was the grantor of an irrevocable trust which had a primary purpose of protecting her assets from being used to pay for long-term care under Medicaid rules. While an irrevocable trust normally cannot be changed, the court allowed this trust to be changed because based on testimony from those familiar with her intent, it was clear that there was a drafting error.

Examples of types of trusts include:

Educational trust. The property in an educational trust is set aside 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 be used to pay for private primary school tuition as well as college tuition. Or the trust could specify that the fund can be used for college tuition only if the beneficiary maintained a certain grade point average.

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 trustee controlling the funds. 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, while paying for a car might not 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 trusts are also often created when a child earns or wins a substantial amount of money.

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 poor financial decisions. 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 terms of the trust do not allow creditors are unable to access the trust property.

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 your children.

Special needs trust. A special needs trust is set up to support a beneficiary who has a disability. The beneficiary could be a child or an adult. 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. A special needs trust is different from other types of trusts in that is specifically 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. NY EPTL § 7-1.12. It is also referred to as a supplemental needs trust. It is up to the trustee to administer the trust so that only eligible expenses are paid out of trust funds.

Honorary Pet Trust. A pet trust is a trust that provides for the care and maintenance of your pet dog, cat, or other type of pet in the event your pass away or become disabled such that you are unable to care for them. N.Y. EPTL § 7-8.1. Under New York law a pet trust will terminate upon the death of the animal or after 21 years. When setting up the pet trust and funding it, you must fund it only with an amount of money that is reasonable to care for the pet. The appropriate amount will depend on the type of pet, its age, and its health. Under New York law if you set aside an amount that is unreasonably high a judge will likely reduce the amount. For example, a court is likely to find it excessive to leave $3 million in a pet trust for a 12 year old Yorkie. After the trust is terminated the remaining assets will be distributed according to the terms of the trust, or will go to your estate as the trust grantor.

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.

Removal of a Trustee

A trustee's role is that of a fiduciary with respect to the beneficiaries of the trust. As such the trustee is held to a very high standard. If a trustee violates his or her duty as a fiduciary, that trustee may be suspended or removed by the court. N.Y. EPTL § 7-2.6. A trustee may have violated his or her fiduciary duty if the trustee does the following:

Fails to abide by the specific terms of the trust. A trust agreement typically outlines specific directions that a trustee must follow. If the trustee fails to follow those instructions, the beneficiaries can petition the court to remove the trustee.

Self-dealing and conflicts of interest. Trustees and other fiduciaries are required to make financial decisions that are in the best interest of the trust and the trust's beneficiaries. If a trustee makes a decision that is in his or her self-interest and not in the best interest of the trust, the court may intervene and remove the trustee. If as a result of such self-dealing the trustee damages the trust's financial position or enriches him or herself, the court my order that the trustee make the trust account whole for any losses suffered, or personal enrichment.

Beneficiaries can petition the court for removal upon the showing of good cause for the removal. A court will hear such a petition and has wide discretion to remove a trustee if it finds good cause to do so. If a trustee is removed or resigns, if there is a successor trustee or co-trustee, that trustee will move forward with managing the trust. If not, then the court will have to appoint a new trustee.

If the court finds that a trustee has violated a fiduciary duty, the court is not required to remove the trustee. Depending on the type of violation and its severity, there are other remedies short of removal that a judge may require. For example, if the trustee fails to follow the terms of the trust agreement, the court my order the trustee to do so. The court may also suspend the trustee. Of course, the court may find that the trustee's actions are so egregious that removal is the appropriate remedy.

If you have concerns about how to set up a trust, how to administer a trust, or how a trust that you already have is being administered, contact Stephen Bilkis and Associates. If a trust is not set up properly is not managed properly, your finances or the finances of your beneficiaries will likely be negatively impacted. We have years of experience representing trust administrators, beneficiaries and other interested parties in New York courts. We will advise you on the best course of action for your specific trust administration concern. Contact us at 1-800-NY-NY-LAW (1-800-696-9529) to schedule a free, no obligation consultation regarding your estate plan.

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