and Your Family
Manhattan Living Trust
Estate planning is a way of making sure your family is cared for according to your wishes once you pass away. Estate planning can be complex, involving many different documents. The most common estate planning document is a last will and testament. Using a will you can specify how you would like your property distributed to your loved ones upon your death. It offers the flexibility to allow you to leave all of your property to one person such as your spouse, or to make specific bequests to different beneficiaries. However, with another estate planning document called a trust you can also designate who receives your property once you have passed away. In addition, like a will you can be very specific as to who gets which of your assets. To learn more about living trusts and wills, and how each can be used to reach your estate planning goals contact an experienced Manhattan Living Trust Lawyer.
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A trust agreement is a legal entity that holds property for the benefit of another person. A trust can be "living" or "testamentary." A living trust is created and funded while you as the grantor are still alive. On the other hand, a testamentary trust is created and funded by your will upon your death. For example, supposed your will provides that upon your death you leave the balance of your savings account to your minor niece to be used for education expenses. Until you die, there is no gift to your niece. On the other hand, if you set up a living trust immediately, you could transfer funds to it for the benefit of your niece. When you create your living trust, you can name yourself as the trustee. This allows you to retain control over the trust assets during your lifetime even though they are no longer owned by you.Revocable Living Trust vs. Irrevocable Living Trust
A living trust can be revocable or irrevocable. With a revocable living trust you can name yourself as the trustee. You have the authority to change or revoke the trust at any time. If you decide that the trust is no longer necessary, then you are free to dissolve it. Or, if you would like to change its terms you can do that at any time. Once you pass away, however, a revocable living trust becomes irrevocable. At that point the assets in the trust will go directly to the trust beneficiaries without going through probate.
On the other hand, you cannot change an irrevocable living trust. This means that you do not have control over the property. The trustee of the trust (who is not you) has control, and will exercise that control for the benefit of the beneficiaries who you designated. Because of this not only will the trust property avoid probate, it also will not be subject to estate taxes.
Another advantage of an irrevocable living trust is that creditors cannot reach the assets you transfer to it. This means that if after you set up the irrevocable living trust you run into financial problems and ultimately must file for bankruptcy, your creditors cannot access property in the trust because it is no longer part of your estate. Similarly, if you need to apply for Medicaid or veteran's benefits and you set up the irrevocable trust will in advance, the property in the trust will not be counted as an asset for purposes determining whether or not you are eligible for such benefits.The Different Types of Living Trusts
Depending on your goals, there are several different types of living trusts.
- Education Trust. If you would like to stash away money for your kids' education you can do so by setting up an education living trust. This allows you to put a sum of money into the trust and direct the trustee to use it only for expenses related to the beneficiary's expenses. You can be very specific as to how the money can be used. For example, you can restrict the type of education for which the fund can be used such as just for 4 years of college, for college and graduate school, for trade school, or for private high school tuition. You can also specify whether the funds can be used for going to school part-time, or if the beneficiary must go to school full-time. Can the beneficiary go to any school he or she chooses, including online school? You can include room and board, as well as books and supplies as eligible education expenses. In other words, you can use the trust to determine for what type of education the beneficiary can use trust funds.
Additional considerations for a educational trust would be what happens to the trust if the beneficiary never goes to school. Would the funds then go to a different beneficiary? What happens to funds in the trust that are leftover after the beneficiary finishes school? Would those funds then go directly to the beneficiary for any use? What if the beneficiary dies before using all of the funds in the trust?
- Minor Child Trust. If you would like to leave property to your minor children, you can do so in a few different ways. One way is to leave them property in your will and name a property guardian to manage it until your children become adults. Another option is to create a living trust and transfer property to it. With a trust you will name a trustee who will handle the property that you leave to your child until the child reaches the age you specify, commonly 18 or 21. If you have more than one child, you can have separate trust accounts for each of your children, or you can set up a "pot trust." With a pot trust all of the property is put into one trust fund. The trustee will distribute trust funds for the benefit of your children, but will not necessarily spend the same amount on each child. The trustee will spend money according to the individual needs of each child. When the youngest child reaches the age you specify in the trust document, the trust ends.
- Spendthrift Trust. Suppose you have a niece who you adore and who you want to leave property. The problem is that this niece, even though she is thirtysomething, is very irresponsible with money. One way to leave money to an irresponsible adult is to establish a spendthrift trust. A spendthrift living includes restrictions on the beneficiary’s access to the assets of the trust. The beneficiary would not be able to access the trust funds and neither would the beneficiary's creditors. Instead, the trustee gives money to the beneficiary or on behalf of the beneficiary in limited amounts according to the terms of the trust agreement. The distributions may be in the form of a regular allowance, or it could be in the form of purchases made by the trustee for the beneficiary.
In addition to a fiscally irresponsible adult, a spendthrift trust may be appropriate for a relative who has a substance abuse problem that may lead him or her to squander the funds, a relative who has a track record of racking up debt with creditors, or a relative who is easily defrauded.
- Special Needs Trust. If you have a child, sibling or other relative who has special needs such as a mental or physical disability, then you can set up a special needs trust to ensure that he or she has funds to pay for certain expenses related to his or her care. A significant benefit of the special needs trust is that it allows you to provide resources to the beneficiary without jeopardizing that beneficiary's eligibility for need-based government benefits such as Medicaid. Special needs trusts are often set up to benefit loved ones with autism, Down's Syndrome, and cerebral palsy.
Care must be taken when setting up a special needs trust, and the trustee must understand the limitations on how trust funds can be used. Eligible expenses may include medical care, rehabilitation, education and training, special equipment, companion care, and recreation.
Living trusts and wills are both estate planning strategies that allow you to name someone as the beneficiary to some or all of your assets. An important difference is that a living trust is effective while you are still living. A will, on the other hand, does not become effective until after your death.
Another significant difference between a living trust and a will is that a will must be probated, while a living trust does not have to go through the probate process. Probate is the legal process during which your executor winds up you estate and distributes your assets to you beneficiaries. The process starts with the New York Surrogate's Court reviewing your will to make sure that it was drafted and executed consistent with the requirements of New York law. Once the Surrogate's Court determines that your will is valid the executor will go about the business of winding up your affairs. Steps in the probate process include collecting and inventorying your assets, appraising your assets, paying debts of your estate, and distributing your assets to your named beneficiaries. While the steps in probate are few, the process can be long and expensive. The time and expense that go along with probate is avoided with a living trust. Instead, upon your death the successor trust that you have named in your trust agreement will take over the duties of the trustee and immediately distribute the trust assets to your named beneficiaries or manage the trust assets in the appropriate manner, according to the trust agreement. The idea of avoiding probate is a very attractive benefit of a living trust as compared to a will.
Keep in mind, however, that even if you have a trust, your estate plan should also include a will. For a variety of reasons every asset in your estate will not be part of a trust. Thus, it is important to also make sure that you have a valid will that accurately expresses your wishes. If it is important for your goals that all of your assets end up in your trust, then you can make a special type of will called a pour over will. With a pour over will any assets that you did not transfer to your living will before you passed away will "pour over" into your trust after probate.
If you do pass away without a will leaving assets that are not part of a trust, then the court will have to decide who gets those assets. Under New York's intestacy laws there are specific rules that dictate who will get those assets. For example, if you have a spouse as well as children, most of those assets will go to your spouse with a smaller share being divided among your surviving children. If you have surviving children, but no surviving spouse all of your assets will go to your children. The laws of intestate succession generally only allow assets to go to a spouse or a blood relative. NY EPTL § 4-1.1. If you want assets to go to a friend or charity, for example, you would have had to specify that in a will or trust.Funding a Living Trust
Funding a living trust means transferring your property to it. Once you do so the property will no longer legally be owned by you, but by the trust. If you name yourself as the trustee of the living trust, despite the fact that you transferred your property to it, you will still maintain a great deal of control over the property. Keep in mind, however, there may be gift tax consequences to transferring property to a living trust for the benefit of another person.
A trust can be funded with almost any type of property. Trust property typically includes cash, stocks, and real estate, but can also include a business, gold or other precious metals, fine art, jewelry, antiques, collectibles and other personal property.
Funding a trust with cash is relatively simple, requiring you to simply open a bank account with the trust as the owner. Each time you deposit money into that bank account owned by the trust, you will be adding to the trust's principal. Similarly to fund a trust with stocks or bonds, you would have to follow the same procedure: open a brokerage account in the name of the trust and transfer investments to it. To fund a trust with a house or other real estate, you would have to re-titled the property from your name to the name of the trust. A new deed will have to be executed and filed with the appropriate government agency. If you still have a mortgage on the property, the transfer will become more complicated.
To fund your trust with personal property such as jewelry, works of art, antiques, collectibles and clothing you would need to complete a document detailing the nature of the property and stating that you are transferring ownership to the trust. Particularly in the case of property such as a vehicle, before you transfer it to a trust, an expert should be consulted to advise you of the financial consequences of such a transfer as well as any state and local requirements of effecting such a transfer.
A living trust is an estate planning tool that offers a great deal of flexibility. You can use it for a variety of goals such as leaving assets to loved ones, providing for a disabled relative, protecting your assets. However, a trust is a complicated document and in order to receive all of the benefits of a living trust and to minimize tax consequences, it must be set up properly. Different types of trusts have different requirements that only an experienced Manhattan Living Trust Lawyer will understand. To learn more about how a living trust would fit into your estate plan contact Stephen Bilkis & Associates, PLLC. We will help you develop an overall estate plan that reflects your individual goals. Contact us at 800.696.9529 to schedule a free, no obligation consultation regarding your estate plan.