What is a trust?
A trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor, also referred to as a Grantor or Maker, who transfers property to a Trustee. The Trustee holds that property for the beneficiaries designated by the Settlor in the trust agreement. People enter into minor trust agreements all the time without even realizing it. For example, imagine that you are moving out of the country and want to give your sister some valuable coins you once collected instead of taking them with you. Your sister, however, is away on vacation for another two weeks so you ask your brother to safeguard the coins until your sister returns and then give them to her. In that scenario, you have created a trust agreement wherein you are the Settlor, your brother is the Trustee, and your sister is the beneficiary of the trust.
What is funding a Trust?
What is meant by "funding a Trust"? Funding a trust means making sure that assets are titled in the name of the Trust. If assets are not titled in the name of the trust or if beneficiary designations are not coordinately properly with a Trust, the Trust cannot control those assets.
Should I use a trust instead of a Will to distribute my estate?
A Last Will and Testament probably serves as the foundation of your estate plan. As your estate and your family grow, however, you may wish to consider switching to a trust as your primary asset distribution method. Whether you want to use a Will or a trust to distribute your estate is something that can truly only be decided after consulting with an experienced estate planning attorney; however, there are some common considerations when deciding whether a Will or a trust should be used. If your estate is small enough to qualify for small estate administration, and you do not have minor children (nor plan to have any in the near future), a simple Will may be all you really need. If, however, your estate is large enough that probate avoidance is a consideration and/or you do have minor children who will inherit from your estate, you may wish to consider relying on a living trust as your primary distribution tool within your estate plan.
What is trust administration?
A trust agreement is the name of the document used to create a trust. Within the trust agreement are the terms, created by the Settlor, that dictate how the trust will operate. Trust administration refers to the Trustee’s job of overseeing the terms of the trust in action. As a general rule, the more complex and/or valuable the trust assets are, the more time consuming and complicated it is to administer the trust.
Why might I include a trust in my estate plan?
A trust can help achieve a wide range of estate planning goals; however, some of the more common uses for a trust include:
- Avoiding probate
- Incapacity planning
- Asset protection
- Medicaid eligibility planning
- Planning for parents with minor children
- Special needs planning
- Pet planning
Who should I appoint as the Trustee?
The answer to this question often depends on the purposes for which you created your trust. For many people, an adult child is a fine choice for a Trustee. In other circumstances, a professional Trustee may be appropriate. The guidance of an experienced estate planning attorney will be helpful to you in choosing your Trustee.
What does a Trustee do?
In general, the Trustee is responsible for administering the trust using the trust terms created by the Settlor and managing the trust assets. Some of the specific duties and responsibilities of a Trustee include:
- Following all trust terms unless they are illegal or unconscionable.
- Communicating with beneficiaries.
- Investing trust assets using the standard set forth in the trust agreement.
- Managing trust assets.
- Distributing trust assets.
- Keeping trust records.
- Preparing and filing trust taxes.
- Defending the trust against legal challenges.
Are there different types of living trusts?
Living trusts can be further divided into revocable and irrevocable living trusts. A revocable living trust can be amended, revoked, or terminated by the Settlor at any time and for any reason. An irrevocable living trust may provide for authority to amend depending on the purpose of the trust, and may even be revoked or terminated under certain circumstances.
Are there different types of trusts?
All trusts are can be broadly divided into two categories – testamentary and living trusts. A testamentary trust is one that does not become active until the death of the Settlor and which is typically triggered by a provision in the Settlor’s Last Will and Testament. A living trust, also referred to as an “inter vivos” trust, activates when all formalities of creation are complete and the trust is funded.
Should you have a lawyer for trust creation?
What assets should be in my revocable trust?
A revocable trust is typically created for the purpose of transferring assets outside of probate process as well as for the purpose of protecting assets in case of incapacity. Many different kinds of assets could potentially be transferred to your revocable trust so those assets can pass on quickly to new owners. Some assets you may wish to transfer into your trust include intellectual property rights; ownership interests in businesses; real estate; stock shares; personal property with significant value; and other investments. An attorney can help you to understand the implications of transferring assets into a trust and can assist you in formally making a transfer of ownership of assets into your trust.
What is an asset protection trust?
An asset protection trust is a trust that is created for purposes of protecting assets. Asset protection trusts must be created in a jurisdiction that allows this trust type or may be created offshore. The trust should be created in a jurisdiction with laws favorable to the protection of assets and it should be created in accordance with local requirements. Assets you wish to protect should be transferred into the trust with the goal of deterring creditor claims against you. You should work with an experienced attorney to create an asset protection trust and to make certain you have appropriately funded your trust.
How can you prepare for creating a trust?
If you are considering the creation of a trust, you should take some steps in advance to ensure that you make the right type of trust and to ensure that your trust is legally enforceable. To prepare for creating a trust, you will need to find the right attorney who can advise you. You’ll need to identify your goals for creating a trust so you can select the right trust type. You should also list the assets that you want to transfer into the trust. By thinking about exactly what you want your trust to accomplish and by identifying the assets that you are hoping to keep safe, you can put New York’s trust laws to work for you.
Should only the elderly create trusts?
Many people believe that only the elderly should create trusts, but this is a myth. Trusts can be very helpful in protecting your assets during your lifetime in case you require Medicaid to cover your nursing home care since other medical insurance will not pay for long term care. However, to protect the maximum value of your assets, you’d need to have a trust in place and would need to have transferred assets into the trust at least five years before you need to qualify for Medicaid. You don’t know when you may need a nursing home, so you should act early to put plans in place. Trusts can also be a key part of your legacy plan and can facilitate the timely transfer of assets to your loved ones while also helping you to avoid estate tax. Since you don’t know when something could happen to you, it is a good idea to make a trust early so you have the peace of mind of knowing your assets and family are as protected as possible.
Can you protect an injury settlement with a special needs trust?
You can protect your injury settlement with a special needs trust, provided you follow the rules for creating and funding this type of trust. Many people become disabled as a result of an injury. Their disability could result in costly medical bills and expensive long term care costs. Medicaid will pay for many of the costs associated with a serious injury or disability, but you won’t be eligible for Medicaid if you have too many assets. An injury settlement could potentially cause a loss of access to Medicaid benefits because the settlement would give you too much wealth– but a special needs trust could help you to keep your settlement safe while still getting Medicaid to cover you.
Should trusts be part of your inheritance planning?
Trusts should definitely be part of your inheritance planning. A trust could be a key component of your inheritance plan because trusts are both versatile and powerful. Trusts can allow you to protect your assets during your lifetime so you can keep your wealth safe to pass on to new owners. Trusts can also make it possible for you to address specific needs that your heirs or beneficiaries may have. For example, if you have a loved one with a disability that you want to provide a financial gift to, you can use trusts to ensure that the gift you give to your loved one does not cause a loss of access to means-tested benefits like Medicaid and Supplemental Security Income. Trusts can also make it possible for you to leave money to a spendthrift heir without worrying about money being lost or can allow you to leave money and property to a minor without having to worry about how the money will be managed until the minor is old enough to take responsibility.