You probably already knew that trusts allow assets to pass easily to heirs, but you might not be aware that there are several different kinds to choose from. Trusts are categorized according to when they go into effect and who owns the assets placed in trust. Here is some background information about each type to help as you plan for the future.
All trusts are started by the grantor, the person placing assets in trust. However, not all trusts go into effect immediately. Living trusts are one of the kinds that do take immediate effect, transferring assets from one person to another while the grantor is still alive. This allows the person’s beneficiaries to avoid the cost and time associated with probate, and it ensures that the property contained will not be included in the estate’s value for tax purposes.
This type of trust takes effect upon the testator’s death, and is often outlined within the person’s Will. It places named assets in trust for the beneficiary. Because the assets contained in the trust are part of the Last Will and Testament, they might still be subject to probate. Some people prefer testamentary trusts because they are convenient and inexpensive to create when drafting a Will.
Revocable trusts can be modified at any time throughout the grantor’s life. For instance, a testamentary trust is revocable up until the testator’s death, because the person is free to add or remove assets as they see fit. The trustee can invest, sell, or give away the property in trust, and they can change the beneficiaries or terminate the trust whenever they like. Assets then pass to the successor trustee, who acts on behalf of the trust.
When creating an irrevocable trust, the grantor gives up their right to control all the property placed in trust. They also cannot change the terms or beneficiaries of the trust once it goes into effect, and it cannot be cancelled if the beneficiaries do not consent. Placing assets in an irrevocable trust allows estate tax to be avoided on the property, since it no longer belongs to the estate. Property placed in an irrevocable living trust will still be subject to federal gift tax, however.
Benefits of Placing Assets in Trust
Trusts are useful for protecting assets as well as avoiding estate tax and probate. For example, if the beneficiary is a minor, a financially irresponsible adult, or has special needs, the trust can be made to distribute funds according to a specified schedule so that all the funds are not accessible. Creating an irrevocable trust can also be helpful for older adults who would like to qualify for long-term care benefits. Talk to a New York probate lawyer for more information about the benefits of different types of trusts.
For help deciding which trust is right for you and your family, contact Queens estate planning lawyer Richard Cary Spivack, and get peace of mind going forward.