Trusts: How they compare to Wills

While having a Will is important for many reasons, it does have its limitations. If you want or need additional “flexibility” or “longevity” in your estate plan, a Trust may be an appropriate feature of your estate plan. A Trust can serve many purposes, including (a) providing asset protection, (b) nuanced tax planning, (c) avoidance of probate, (d) planning for your mental incapacity, (e) providing for contingencies in case of divorce or bankruptcy of a beneficiary, (f) qualifying disabled beneficiaries for or preserving their government benefits (aka Special Needs Planning), (g) protecting your beneficiaries “from themselves” by holding assets in Trust for your beneficiaries until they are “old enough” or “mature enough,” and/or (h) by attaching other “strings” or conditions to your assets before they can be distributed. Essentially, a Trust can help you control (even beyond your death) under what circumstances your beneficiaries would get your assets.

Estate Administration

The process of administering a person’s estate who died intestate, or without a Will, is called administration. If one dies without a Will, the laws of the State of New York (that is, the laws of intestacy) will determine the recipients (or distributees) of the decedent’s estate. The applicable statute is Estates, Powers and Trusts Law (EPTL) Section 4-1.1. Depending on your situation, you may or may not agree with how New York would distribute your assets. For example, if an unmarried person dies with predeceased parents and without children, that person’s estate may go to his or her siblings, nieces and nephews, or even cousins, depending on the decedent’s “family tree.” If the decedent person wanted to avoid that outcome, he or she should have written a Will to override New York’s intestacy laws and to dictate who should get the assets.

Special Needs Trust & Special Needs Planning

Special Needs Planning involves planning for individuals with those “special needs”, and it includes assisting these individuals with preserving existing or applying for additional government benefits. One of the planning tools involves setting up a Special Needs Trust.

Irrevocable Trusts

An Irrevocable Trust is an estate planning entity, which you can create both during your lifetime or through your Will. While there are many similarities to a Revocable Trust (after all, both entities are a Trust), there are key differences between an Irrevocable Trust and a Revocable Trust.

Tax Issues & Consequences related to Gifting an Asset

When you (the donor) make a lifetime gift, the recipient of your gift (the donee) takes over your cost basis. In other words, your cost basis for the gift is “carried over” to the recipient. For example, a carry-over basis may apply when you transfer your house for no consideration to your family member directly, or to certain types of Irrevocable Trusts. This can have potentially significant capital gains tax liabilities for the donee, because the recipient would be responsible for the tax on the unrealized gain accrued by the donor when the donee sells the asset.

Revocable Trusts

A Revocable Trust is an estate planning entity that you create during your lifetime. You can transfer assets to your Trust during your lifetime or through your will. Typically, you are both the sole trustee and the sole/main beneficiary of the Trust. This means that during your lifetime and while you have capacity, you are in full control of the Trust. For example, you can transfer all or some of your assets to the Trust, you can transfer assets out of the Trust, and you are entitled to all of the income generated by the Trust’s assets. Furthermore, you can change the trustee and beneficiaries at any time, and you can (as the name of this type of trust suggests) revoke the Trust at any time.