Clients often ask when putting together their estate planning documentation how they can protect and distribute their assets without the need of going to court while at the same time making sure their loved ones will have access to their assets soon after they pass away. One of the most popular estate planning strategies available to people who have these types of concerns are trusts. A trust can insure a faster distribution of the assets to a deceased person's family.
Before getting into the different type of trust options available to you let's review some basic trust terms:
The grantor: The person who creates the trust document and transfers property or assets to the trust.
The trustee: The party who follows the trust’s instructions, invests trust funds, uses trust property for the beneficiary’s needs, and pays the trust’s administrative expenses.
The beneficiary: The person or group of people who sits back and enjoys the benefits from the trust’s assets and/or income.
Two of the most common types of trust that are used are revocable and irrevocable trust. Each type of trust comes with its own special set of rules which a party should be aware of before deciding which one is right for them.
Revocable or Living Trusts
A revocable trust also known as a living trust allows for the passing of assets without the need to go to court to probate the estate of the deceased person to receive the assets held by the trust. As the party that creates the trust you are the grantor and a revocable/living trust allows you to name yourself as the trustee or co-trustee and retain control of the assets during your (the grantor’s) lifetime.
A revocable/living trust is flexible, the grantor can dissolve or amend the trust at any time should they wish to change the beneficiaries or remove an asset from the trust for any reason. Once you (the grantor) dies, the living trust becomes irrevocable.
An irrevocable trust is created in the same was as a revocable/living trust. But as its name indicates once a irrevocable trust is created and the assets are placed in the trust it is very difficult to change the terms of the trust. In addition you as the grantor cannot be named as a trustee and you lose all ownership and control over the trust assets during your life. Many of our clients who opt to create an irrevocable trust do so in order to qualify for Medicaid or some other benefits program. Assets held in an irrevocable trust generally become exempt from the grantor’s taxable estate. This in turn decreases the grantor’s tax liability, particularly if they have a large estate.
Choosing which type of trust to establish can seem overwhelming. Each has their own benefits and drawbacks, and each can help you accomplish different goals. Discussing your individual estate planning needs in detail with an experienced attorney is key to determining which type of trust you should form and how the terms of your trust need to be structured.
If you need to schedule your free consultation to speak with an experienced estate attorney please contact Kevin O'Sullivan at (718) 713-3499 or e-mail him at firstname.lastname@example.org. We proudly serve clients in New York City, Long Island and Westchester.