Estate planning involves the effective use of the legal tools available to create a comprehensive estate plan that allows a person to leave a lasting legacy. Trusts are an important part of estate planning which allows individuals to manage their assets effectively. A well-designed trust can allow you to keep your assets safe for your chosen beneficiaries.
However, it is important to remember that a tool is only effective if it solves and addresses your personal concerns and goals, such as setting up a revocable and irrevocable trust for your and your beneficiaries’ future use. Getting the help of an experienced Long Island trusts attorney who can evaluate your financial situation can be beneficial in determining whether you should include a trust in your estate plan. Top-rated Long Island estate planning lawyer Seth Schlessel is here to help. Contact Schlessel Law, PLLC today at (516) 574-9630 to schedule a complimentary consultation.
What is a Living Trust?
A living trust is a kind of trust that allows a grantor to use the assets in the trust while they are alive. Depending on the terms of the trust, the grantor may be able to continue using the assets placed in the trust and can add more assets into the trust throughout their life. The grantor’s beneficiaries can receive the assets in the trust once the grantor has passed away.
A living trust is meant to own the grantor’s assets throughout their lifetime and to house as many assets as possible. While most trusts have another person acting as trustee instead of the grantor, it’s not uncommon for living trusts to have a grantor-trustee to allow full control over the trust’s assets. A successor trustee is also assigned to take over the trust once the grantor, and initial trustee, passes away. The successor trustee is the one responsible for overseeing the transfer of the trust’s assets to the beneficiaries.
A living trust can either be revocable or irrevocable.
Revocable Living Trust
A revocable trust and a living trust can often be used interchangeably to refer to a trust which can be changed after it is created. Having a revocable trust allows a grantor to add or remove beneficiaries and modify the terms of the trust, the assets included in it, as well as the way the assets are managed.
Irrevocable Living Trust
Compared to a revocable trust, the terms of an irrevocable trust cannot be changed once it is created, hence the name. Once the trust is signed, the consent of all beneficiaries or the approval of a court is required to be able to change the terms of the trust. A grantor for an irrevocable trust cannot act in the capacity of trustee.
Whether you should include a revocable or irrevocable trust in your estate plan depends on the purpose you want the trust to have. It is important to weigh the pros and cons of each option before deciding which kind of trust you want to establish. Experienced Long Island trusts attorney Seth Schlessel of Schlessel Law, PLLC may be able to help you understand which kind of trust best addresses your estate planning goals and walk you through the process of creating your estate plan. Call us today at (516) 574-9630 to schedule a free consultation with top-rated Long Island estate planning attorney Seth Schlessel.
What Are the Advantages of a Revocable Living Trust?
One of the most important advantages a living trust can have is avoiding probate. Probate is the process of transferring a decedent’s property to their heirs and beneficiaries. When a trust is created, the ownership of the assets put inside the trust gets transferred from the grantor’s name into the trust. Given that the assets are under the trust’s name, the transfer of the assets can be expedited and, in some cases, probate may be avoided entirely for the assets included in the trust. A trust also allows you to avoid multiple probate cases in different states.
Trusts allow you to manage your assets in the long-term and afford you more control over the timeframe of the distribution of your assets. While a will can also be used to manage your estate after your death, the distribution of your assets is typically initiated once probate is concluded. You can also continue to provide for your loved ones’ needs with the use of a trust and even donate assets to your favorite charities at regular intervals. Even while you are still alive, your trust can help in managing your assets in multiple states using only one document.
Protection from incapacity
A living trust can also provide you protection when you are declared incapacitated. You may be able to avoid the necessity for conservatorship or guardianship proceedings with your trustee acting as a fiduciary over the assets you have in your trust. While a durable power of attorney may be subjected to additional legal scrutiny, your trust can ensure that your assets are protected for you and your beneficiaries.
The terms of a living trust can allow the records of your estate to remain between you, your trustee, and your beneficiaries. When a will goes into probate, its contents become a matter of public record. Trusts are also less likely to and are more difficult to contest than a will and can better provide you with peace of mind concerning the management of your estate.
|Advantages of a Revocable Living Trust||Description||Benefit|
|Avoiding probate||Transferring assets to a living trust avoids probate, the process of transferring property to heirs/beneficiaries.||Expedited transfer of assets, potential avoidance of probate cases in different states.|
|Financial control||Trusts allow long-term asset management and control over asset distribution.||Flexibility in distributing assets, ongoing provision for loved ones, and the ability to donate assets periodically.|
|Protection from incapacity||A living trust provides protection in case of incapacity, avoiding conservatorship/guardianship proceedings.||Assets remain protected for the grantor and beneficiaries, potential avoidance of additional legal scrutiny.|
|Privacy||Living trusts offer privacy, keeping estate records confidential.||Estate records remain private between the grantor, trustee, and beneficiaries, reduced likelihood of contestation.|
What Should You Look Out for When Creating a Revocable Living Trust?
The cost of creating and updating a trust
Trusts can be expensive to draft and a person must seriously consider whether the benefits of creating a trust will outweigh the disadvantages. A trust is not court-supervised and the creation of one often requires legal assistance. Given that a revocable trust can be updated over the course of the grantor’s lifetime, edits to the trust’s terms can pile up. Transferring and deeding assets into the ownership of the trust also adds additional costs.
You may also need to create a “pour-over” will that can distribute any property remaining in your name into the trust. A “pour-over” will can help prevent any assets you have that are not in the trust from being subjected to New York’s intestacy laws. However, a “pour-over” will is still subject to probate.
However, it can be useful to keep in mind that assets not in a trust would be subject to probate. Even though New York has not yet applied the Uniform Probate Code, a decedent’s estate can still be required to pay a fee while the estate is in probate.
Does not provide tax advantages
A living trust can help you avoid probate but cannot help you avoid estate taxes. The New York estate tax rate applies to estates valued at over $6.11 million as of 2022. While most individuals don’t have to worry about paying estate taxes, the fact remains that a person’s tax obligation cannot be lessened by creating a living trust. If the assets placed in the living trust earn income, it should continue to be reported in the grantor’s income tax return under the “grantor trust” income tax rules.
Limited Asset Protection capacity
Assets placed in a living trust can still be accessed by creditors. If your revocable trust remains in your control as a grantor-trustee, any asset placed in the trust can be counted as your own. Creditors can file a claim on those assets and you may be required to liquidate property in the trust if the claims are held valid in court. A living trust may not be a good option for asset protection purposes in this regard.
A revocable living trust can provide some protection against Medicaid estate recovery but would not allow a person eligibility for long-term care as the assets in a revocable trust are still accessible to the grantor. Getting the help of an experienced Medicaid planning attorney may be beneficial if you are looking into creating a trust for Medicaid purposes.
Selling Property Held in a Living Trust After Death
Before completing the sale of property held in a trust, it is crucial to transfer the net proceeds to a trust account. This ensures a smooth process for depositing the proceeds without any complications. It is also necessary to gain the consent of all the beneficiaries in the trust before selling the property to avoid any potential disputes down the line.
It is the trustee’s duty to maintain the productivity of the trust property. It is their duty to prudently reinvest profitable sale proceeds for the benefit of the trust beneficiaries. Just as the trust governs the administration of real estate held within it, the same principles should apply to the administration of sale proceeds. However, the trustee may be able to utilize the proceeds to purchase a substitute property, subject to the trust’s terms.
Furthermore, the trustee needs to take into account the tax ramifications associated with selling real estate held within the trust, as the specific type of trust will determine the applicable tax consequences. For a living trust, the grantor may be eligible for the capital gains exclusion of $250,000. Moreover, in a living trust, any income generated from investing the proceeds will be taxed to the grantor.
To fulfill their fiduciary duty, the trustee must have a thorough understanding of the trust’s terms. If any uncertainties or questions arise regarding their powers or responsibilities, it is recommended for the trustee to seek guidance from an estate planning attorney. Deviating from the terms of the trust can lead to the trustee being personally held liable.
It’s important to note that the process of selling a property held in a living trust can be complex, and consulting with a Long Island estate planning lawyer experienced in trust administration and real estate law is necessary to ensure compliance with all legal requirements in New York. Schedule a consultation with Schlessel Law PLLC today to learn more about the pros and cons of selling a property in a trust.
How Can I Determine the Right Kind of Trust for Me?
The right kind of trust for you is one that addresses your specific estate planning needs. On one hand, for individuals with minor children or children with special needs, establishing a living trust can help provide additional options to help ensure their ongoing care without needing to go through guardianship. On the other hand, individuals with high-risk professions such as lawyers and doctors may want to explore other trust options to take advantage of their asset protection benefits.
Trusts are not a one-size-fits-all solution. Getting the help of a qualified Long Island trusts attorney who can take careful stock of your financial situation and provide options according to your estate planning goals is crucial.
Our experienced Long Island estate planning attorneys at Schlessel Law, PLLC have dedicated their careers to providing Long Island families with quality legal advice in all matters of estate planning and probate law. We may be able to assist in creating a trust document that reflects your and your family’s needs and goals and allow you to leave a lasting legacy for your beneficiaries. Contact us today at (516) 574-9630 to schedule a free consultation.