Trust Planning in New York

Serving Clients in New York City and the New York Metropolitan area

Grimaldi Yeung Law Group has drafted countless Trusts to help clients. Our extensive practice includes Trust management and settling Trusts. Let us show you how you can use this commonly discussed but often misunderstood legal strategy to protect wealth and benefit your loved ones.

The Growing Need for Specially Drafted Trusts

No matter the size of your asset base, a Trust can be a critical part of your plan. It allows savings and other assets to be managed during your lifetime – by yourself if you are able and by your designee if you are not. It also keeps the assets private and out of court-governed probate after your death. Additionally, a Trust can be a valuable tool to do special planning for taxes, for underage heirs, and for family members with special needs or disabilities. It can also be an asset for individual heirs who need help with managing their inheritance or who are at financial risk.

We craft a number of different Trusts targeted to each client’s unique needs. These Trusts include:

• Revocable Trusts
• Irrevocable Trusts
• Irrevocable Life Insurance Trusts
• Supplemental Needs Trusts
• And More

During this process, we can help you understand some of the buzzwords and phrases you may have heard from friends and relatives, such as “Irrevocable Trust” and “Revocable Trust,” among others. We will dispel the myths surrounding these concepts and advise you whether and how they may be helpful to you in your own circumstances.

Revocable Trust

A Revocable Trust is created when an individual (the grantor) signs a Trust agreement naming a person(s) such as a family member or a trusted advisor, a corporation (bank or Trust company) or both, as trustee to administer the assets in the Trust. In many jurisdictions, such as New York, the grantor and the trustee can be the same person. In such cases, however, a co-trustee should also be named in order to ensure continuity of management in the event of death or disability. Naming a bank or Trust company as trustee, in addition to a family member or individual, ensures that a competent trustee will always be available to act in the grantor’s best interest. In many instances, banks have set a minimum balance to be deposited before accepting the role of trustee.

A Revocable Trust typically provides that property be managed for the grantor’s benefit. In most cases, the grantor retains certain rights over the Trust during their lifetime. These include the right to instruct the trustee to pay over all or any portion of the Trust property, as the grantor desires, and the right to change or revoke the Trust any time. The trustee’s powers typically include the right to make discretionary distributions of income and principal to the grantor and, sometimes, to the grantor’s family, if the grantor becomes incapable of managing his or her own affairs. If the Trust is holding title to the homestead, the Trust can direct the trustee to maintain the property for the grantor and grantor’s family to continue to reside in the property. This is called a “retained life interest.” The grantor can still be responsible for all the costs and expenses of the house.

When a grantor dies, the Trust acts like a Will, and the property is distributed to the beneficiaries as directed by the Trust agreement. There is no need for a court or probate proceeding. The trustee has the power to distribute the Trust assets at the death of the grantor.

Advantages of Revocable Trusts vs. Wills

Continuity of Management During Disability

Creating a Revocable Trust is one of the best ways to ensure that your property remains available to be used for your benefit during your life, and should you become physically or mentally incapable of managing your own affairs, your successor Trustee can do so. While continuity of management is also possible when a Durable Power of Attorney is signed, third parties such as banks, brokers and transfer agents often have more difficulty in dealing with a Power of Attorney than with a Trust agreement. And, if the designated agent under a Power of Attorney is unable to act, the document may not be usable. In 2021, New York State instituted a new Power of Attorney law and form with more expansive powers and a gift options.

If you become disabled and you have neither a Revocable Trust nor a Power of Attorney, an expensive, lengthy, and potentially embarrassing court proceeding is required to appoint a guardian before your property can be accessed to benefit either you or your family. Even after a guardian has been named, continued court supervision over the management of investments and disbursements is usually required. This can include annual bond fees, creating separate accounts, and preparing annual accounting resulting in additional legal and accounting fees. Creating a lifetime Trust will avoid the need for a guardianship or court action.

Flexibility

Using a Revocable Trust has many advantages, such as avoiding New York state court’s inflexible rules on settling estates. Also, it is usually easier to make amendments to a Revocable Trust than to a will.

Avoidance of Probate

Because probate can be costly and time consuming, the avoidance of probate is often cited as one of the primary benefits of a Revocable Trust.This may vary from one jurisdiction to the next. For example, avoiding probate may be a significant benefit if you own real estate in more than one state, because you avoid multiple probate proceedings. Since each jurisdiction’s probate process is different, it is necessary to hire a local attorney in every state in which you own property, duplicating efforts and costs. A Trust will eliminate multiple state probates.

Availability to Assets at Death

Assets in a Revocable Trust at the grantor’s death continue to be available to the successor trustee. If funds are needed to raise cash to pay burial, maintenance, administration, tax expenses, and debts immediately after death, the funds are easily available. There is no need to wait for a probate decree or issuance of preliminary letters from a Surrogate Court. If the Trust is funded prior to death, the property in the Trust remains in the trustee’s name before and after the death and is immediately available for ongoing costs. This is especially important if the Trust creator has a dependent family, a spouse, or children who rely on support.

Lost or Destroyed Original Wills

When offering a Will for probate after one passes, the original Will must be provided.Typically, an original must be produced at death. If a Will cannot be located, it is presumed the Testator destroyed it with intent to cancel the distributions. Lost Wills can cause family disputes and delays. Since Revocable Trusts are not probated, multiple originals may be signed and be available to establish what property was held in the Trust and will validate the instructions of the decedent and their wishes for the distribution of the Trust property. Having a Revocable Trust, therefore, may simplify the transfer of property at death if the original Will cannot be located or has been destroyed.

No Interruption in Investment Management

A Revocable Trust will provide uninterrupted investment management should the grantor become disabled or die. Assets transferred into the Trust’s name remain titled in the Trust and there is no need to re-register these assets after death. The investment objectives of the grantor’s estate can continue until the trustee wishes to distribute the Trust as described in the Trust.

Disadvantages of Revocable Trust

Trusts vs. Wills

One of the few disadvantages that may apply to using a Revocable Trust instead of a Will is the absolute need to “fund” a Trust, and Trust Grantors often do not fully complete these steps. Assets must be re-titled or re-registered in the Trust’s name during the Trust creator’s lifetime.

Re-registration of Property

As noted above, in order to be included in a Revocable Trust, property must be re-registered in the name of the Trust. This may require signing and filing a new Deed if property such as your home is to be converted to the Trust’s name. This may involve legal costs and filing fees.

Neither Trusts nor Wills Automatically Adapt to Changed Circumstances

When your life circumstances change, such as by divorce, marriage or the birth of a child, your Will must be amended to include these changes, and the same is true for Trusts.Therefore, when circumstances change, the grantor must make sure the necessary amendments to the provisions of a Revocable Trust are made.

Myths About Revocable Trusts

Myth: Revocable Trust Saves Taxes.

No, Revocable Trusts do not save income taxes, nor do they save estate taxes. In fact, during a grantor’s lifetime, property in a Revocable Trust is treated as if it were the grantor’s own property for both income tax and estate tax purposes. A Revocable Trust is tax neutral.

Myth: Heirs Cannot Challenge a Revocable Trust.

Any document can be challenged by a dissatisfied heir. A New York Trust is executed with notarization only. There is no need for witnesses to the signature of a Trust. Thus, a Trust agreement could be more vulnerable to objections than a Will. The main difference is that a Will must be presented to the court, which makes it easier to bring a court challenge, as it is already under the jurisdiction of a court. If an heir wishes to challenge a Trust, the heir must initiate a court proceeding at their own cost.

Myth: Revocable Trusts Protect Assets from Creditors.

This is incorrect. Creditors may reach the assets during the grantor’s lifetime as the Grantor of a Revocable Trust continues to retain access to the Trust. On the other hand, Irrevocable Trusts have this creditor protection, as the grantor has given up control of the assets in the Trust. All Trusts become irrevocable at death.

Conclusion

The primary benefit of creating a Revocable Trust is that it provides a prearranged mechanism that will ensure the continued management and preservation of your assets, should you become disabled or die. It can set forth all of the inheritance provisions of your estate plan and ensure they are followed with no court interference, probate, or delay. 

Revocable Trusts are not for everyone. Whether a Revocable Trust is appropriate for you or your beneficiaries depends on your specific needs and circumstances. Although the advantages of creating Revocable Trust usually out-weigh the disadvantages, the decision to create a Revocable Trust is an individual one, and best made in consultation with your financial advisor and an estate planning attorney.

Irrevocable Trusts

The Irrevocable Trust has all the asset management and probate-avoiding qualities of the Revocable Trust but adds additional advantages. In exchange for the grantor irrevocably relinquishing control of the assets in the Trust, they can secure creditor or asset protection. The terms of the Irrevocable Trust are “fixed” and made permanent upon signing in that the grantor cannot change the plan. Generally, the assets placed in an Irrevocable Trust are no longer in the grantor’s control and are managed by a trustee. An Irrevocable Trust can be an invaluable tool when the Trust Creator wants one of these four goals:

• Protection of assets from creditors: Assets in an Irrevocable Trust are not available to creditors, including Medicaid.
• Medicaid planning and eligibility: Irrevocable Trusts can be drafted to meet Medicaid guidelines. Medicaid will review a Trust of this type to see if the grantor has access to the Trust assets; if not, Medicaid cannot consider these Trust assets when determining Medicaid eligibility. Grimaldi Yeung Law Group regularly works with clients to balance their need for Medicaid eligibility and family and tax considerations.
• Special needs planning: An Irrevocable Trust can also be used for individuals with special needs. It ensures that their assets remain available to provide for the disabled beneficiary while still maintaining eligibility for government, Medicaid, or SSI benefits.
• Guarding against spendthrifts: Many people are concerned that their heirs will not manage assets appropriately — or that their own financial acumen will diminish as they age. An Irrevocable Trust guards against this by placing assets under the control of a competent trustee who makes distributions within the guidelines established by the Trust and has the discretion to limit access to Trust funds when needed.

Irrevocable Life Insurance Trusts (ILIT)

Life insurance is a vehicle which many people use to preserve wealth and provide financial security for their families as well as provide a cash inflow at death. Favorable tax treatment makes life insurance payouts exempt from income taxes; however, proceeds from insurance can be subject to the estate tax. If the policyholder dies and the policy is in his or her name, the value of the death benefit to be paid out will be included in the taxable estate of the deceased. For this reason, many people choose to transfer their life insurance policies to Irrevocable Life Insurance Trusts (ILIT). When properly drafted, an ILIT can remove a life insurance policy’s value from the decedent’s estate. The Trust becomes the owner of the policies, avoiding its value being counted in the the individual’s estate. When the owner of the policy dies, the Trust receives the benefit and disburses it according to the rules of the Trust, avoiding probate – and the estate tax. An ILIT will both allow you to make gifts to the Trust over the term of the Trust and can be structured to carry out your wishes after your death. As with all Trusts, you designate one or more trustees who are obligated to follow your instructions. The costs of creating and maintaining an ILIT are offset by the tax savings, and the Trust will significantly reduce your estate tax liability, which will benefit your heirs who receive the cash proceeds directly from the policy.

Supplemental (Special) Needs Trusts (SNT)

A Supplemental Needs Trust – sometimes called a Special Needs Trust – is an important and flexible tool when you are doing long-term planning for an individual with special needs, a disability, or is expected to need government benefits. SNTs are commonly used to accomplish these goals:

• To guard against the beneficiary’s inability to handle finances due to spendthrift propensity, lack of capacity to invest funds, or poor judgment
• To create or protect current eligibility for government benefits for persons with disabilities
• To provide for care needs or enhanced support for necessities not covered by public benefits or existing community services

Contact Grimaldi Yeung Law Group today for assistance.