Bronx Trust

A last will and testament is the most well-known type of estate planning document. However, a trust is also an important estate planning document that may be vital to reaching your estate planning and financial goals. A trust has some features that are similar to a will, but also offers unique features that a will does not have. For example, like a will, you can use a trust to leave property to your loved ones once you pass away. However, with a trust you can also place complicated restrictions on how the bequest is to be used by your loved one and in what manner your loved one can receive the asset. Furthermore, through a trustee, you can make sure that the gift you make is properly managed even after you have passed away. To learn more about the advantages of a trust and to learn how a trust might fit into you estate planning needs, contact an experienced Bronx Trust Lawyer who will explain the benefits of a trust and how a trust may fit into your specific estate plan.

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Definition of a trust

Like a last will and testament a trust is an estate planning tool. It is a legal entity that you create to hold your assets for the benefit of another person. The assets in a trust are managed by a trust according to the terms of the trust document. The trust document details your instructions as to how the assets in the trust should be managed by the trustee and how they are to be distributed to the beneficiaries you name. As the creator of the trust you are called the grantor or settlor.

A trust can be revocable or irrevocable. With a revocable trust you can change it at any time. With an irrevocable trust, once you create it and transfer assets to it, you cannot change it or take those assets back. Once you pass away a revocable trust becomes irrevocable.

Advantages of a trust

Probate Avoidance. An attractive feature of a trust that distinguishes it from a last will and testament is that a trust is not required to go through probate. This means that your beneficiaries will have to wait at least 9 months and often longer for the probate process to end before receiving the bequests you left them. With a trust, your beneficiaries will receive distributions relatively quickly.

Keep in mind, however, that even if you set up a living trust and transfer practically all of your assets to it prior to your death, there is always the possibility that there is an asset that you failed to transfer to your trust. For this reason, even if you have a trust, it is important to also have a will. Otherwise, any assets left out of the trust will be subject to the rules of intestate succession.

Privacy. A trust is more private than a will. Because a will is probate, it will become public. Probate records are public. This means that anyone can go to the Surrogate's Court are look at your will, see an inventory of your assets, and learn who inherits your property.

A trust, on the other hand, does not go through probate. Generally the details of a trust remain private. This means that the public will not find out the size of your estate and who your beneficiaries are.

Flexibility. Trusts are quite flexible. You can set the trust terms so you can manage the property during your lifetime and name a successor trustee to manage the assets if you become incapacitated or upon your death. You can also be very specific about under what circumstances beneficiaries can receive distributions.

Types of Trusts

There are several different types of trusts. The type of trust that you choose to set up depends on your goals. For example, you can set up a trust to provide for minor children or for elderly relatives. Some establish trusts for relatives who may need guidance in handling finances. A trust can also be set up to protect your assets should you become incapacitated. You can even set up a trust for the benefit of a pet. The legal requirements for establishing the trust, how trust funds must be managed, and when and how beneficiaries receive distributions depend on the type of trust established.

Special Needs Trust. A special needs trust (SNT), also known as a supplemental needs trust, is a trust established for the benefit of a person with a severe and chronic or persistent disability. NY EPTL § 7-1.12. The assets in a SNT can be used to cover necessities as well as quality-of-life items such as special therapies, entertainment, education, and special equipment and vehicles including wheelchairs or accessible vehicles. Those with special needs often receive need-based government benefits. Thus, there are limits on the amount of income and assets they may have and still qualify for such benefits. If a disabled person receives a substantial bequest or inter vivos gift, that person's benefits will likely be terminated. Even if the bequest is substantial, the disabled recipient may very well deplete it fair quickly with medical bills, therapy, special equipment, residential care, and every day needs.

With a SNT you can put assets into the trust and name your disabled loved one as the beneficiary. Someone other than the beneficiary must be named as the trustee. The property in the trust is not considered to be part of the beneficiary's estate. Thus, his or her eligibility for need-based benefits will not be jeopardized.

Spendthrift Trust. A spendthrift trust is a specialized irrevocable trust. A spendthrift is an adult who is unable to manage money will. A spendthrift tends to spend money carelessly and rack up a lot of debt. With a spendthrift trust you can give assets to a spendthrift without allowing that person to have unfettered access to the funds. Instead, the trustee will control the assets. In addition, with some exceptions creditors cannot access the funds while they are still in the trust.

The exceptions to the general rule that assets in a spendthrift trust cannot be reached by creditors is that spendthrift trust assets can be reached to satisfy a federal tax lien, spouse support and child support obligations, and enforceable judgments and claims from creditors (only a percentage of trust income can be reached). You cannot create a spendthrift trust for yourself.

Pet Trust. A pet trust is a trust that provides for the care and maintenance of your pets in the event your pass away or become disabled. N.Y. EPTL § 7-8.1. In New York a pet trust can continue for the rest of the pet's life, or for a total of 21 years. Pet owners are comforted by pet trusts in that they are provided with peace of mind knowing their pets will be cared for according to their instructions. When setting up the trust and funding it, the law provides that the trust fund cannot exceed what may reasonably be required given your pet’s age and standard of living. In the trust document you should describe your pet’s standard of living and care in detail, including its nutritional needs, its health problems and treatment required, as well as the type of home they are accustomed to living in. 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.

Bypass Trust. A bypass trust, also referred to as an A/B trust, is an irrevocable trust jointly created by married couples to reduce estate taxes when the second spouse dies. Upon the death of the first spouse, ownership of most of his or her property is transferred to the trust with the surviving spouse as the beneficiary. This allows the surviving spouse to have access to the trust property without ever owning it. As a result when the surviving spouse dies the property is not included in his or her estate, reducing the amount of estate taxes.

Charitable remainder trust. A charitable remainder trust (CRT) allows the grantor to donate to a charity and still retain a benefit. Once your transfer assets to the trust you receive the income from the trust during your lifetime, or over a fixed number of years. Upon your death or after the fixed number of years, the charity will receive the balance remaining in the trust.

Generation-Skipping Trust. A generation-skipping trust (GST) allows you to minimize estate taxes. Instead of leaving property to your children, the trust would be set up with your children's children as the beneficiaries. As a result, you would avoid the estate taxes that would apply if the assets were first transferred to your children.

Life Insurance Trust. A life insurance trust is an irrevocable trust that lets you reduce or even eliminate estate taxes so that more of your estate can go to your loved ones. With a life insurance trust, instead of you owning the life insurance policy, the trust is the beneficiary of the life insurance. Upon your death the proceeds of the life insurance will be distributed to the trust. You can name anyone as the beneficiary of the policy. For example, you can provide that the trust assets are to be used for your child's college education with the balance distributed to your child after graduation.

Grantor-Retained Interest Trust. A grantor-retained interest trust (GRIT) is an irrevocable trust into you transfer property but retain the right to receive income from the trust for a period of time. At the end of the period the property in the trust passes to your beneficiaries or to another trust for their benefit. Neither you nor your wife can serve as trustee. The main advantage of a GRIT is a reduction in estate taxes.

A trust is quite complicated to set up. Many trusts require not just knowing your goals, who you want to name as the trustee, and who you want to name as beneficiaries. Setting up a trust requires an understanding of complicate laws tax laws, estate planning laws, and in the case of special needs trusts, laws related to Medicaid and Social Security Income. If your trust is not set up correctly the goals of your trust may not be realized and the financial consequences may be severe. To ensure that your trust, will and other estate planning documents are properly drafted and executed, it is important that you work with an experienced practitioner. The staff at Stephen Bilkis and Associates has years of experience working closely with New York clients to develop a variety of types of trusts as well as wills and other estate planning documents. 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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