Individuals are often confused about the benefits of a trust compared to a will. A trust can be created during one’s lifetime. This is called a living trust or inter-vivos trust. Alternatively, a trust can be included in a last will & testament, and that is called a testamentary trust. This article will address the living trust, which takes effect during an individual’s lifetime.
A trust is an agreement between the grantor (creator of the trust) and the trustee, the individual who has agreed to manage the assets contained in the trust in accordance with the terms set forth in the trust agreement. The grantor is typically the initial trustee of his/her own revocable trust. As such, the grantor can change, revoke or modify the terms of the trust at any time. A successor trustee should be named so that the trust can be managed upon the death or incapacity of the grantor/trustee. Placing assets in a revocable trust enables another trusted individual to manage assets even if the grantor had become disabled or incapacitated.
A trust avoids the probate process, which typically involves a court proceeding in which the will is submitted to the surrogate, upon the testator’s death. The court determines whether the will is valid and authorizes distribution of property upon death. Fees, as determined by statute (executor’s fees and court costs), as well as attorney fees are incurred in the probate process.
When a will is submitted to the court for probate, it becomes a matter of public record. Others have the right to contest the will and creditors must be notified to make a claim within a certain period of time. Hence, a trust allows for a more expedient process by avoiding potential delays that can be associated with settling an estate.
A trust is not a matter of public record. There is no requirement to contact beneficiaries or creditors upon the death of the grantor. If drafted properly, a trust can protect distributions from being accessed by creditors of the beneficiary.
A trust is also beneficial if one owns real estate in more than one state. Without proper planning, the estate would have to be probated in New York as well as in the state in which the property is located. If real estate were held in a trust, no probate would be necessary.
Trusts are also used to minimize or reduce estate taxes for married couples. It is possible to set up a living or testamentary trust in which the first spouse to die passes his/her assets to a trust for the benefit of the surviving spouse. This trust, known as a credit shelter trust, preserves the estate tax credit of the deceased spouse. Upon the death of the second spouse, the property will ultimately pass to the couple’s children (or other beneficiaries) free of estate tax.
A major advantage of a trust is the ability to maintain management of the trust assets in the event the grantor becomes incapacitated. A successor trustee, handpicked by the grantor, will take over if the grantor is unable to manage the assets. This provides for seamless management of assets in the event of incapacity and eliminates the need for a time consuming and costly guardianship proceeding.
A trust is not a form, and the trust agreement must be carefully drafted in light of the facts and circumstances of an individual’s situation. Before concluding whether a trust is an appropriate part of one’s estate plan, it is important to consult with an elder care attorney.
Ronald A. Fatoullah, Esq. is the principal of Ronald Fatoullah & Associates, a law firm that concentrates in elder law, estate planning, Medicaid planning, guardianships, estate administration, trusts and wills. The firm has offices in Forest Hills, Great Neck, Manhattan, Brooklyn, and Cedarhurst, NY. Fatoullah has been named a “fellow” of the National Academy of Elder Law Attorneys and is a former member of its Board of Directors. He also served on the Executive Committee of the Elder Law Section of the New York State Bar Association for over 15 years. Fatoullah has been Certified as an Elder Law Attorney by the National Elder Law Foundation. Fatoullah is a co-founder of Senior Umbrella Network of Queens. This article was written with the assistance of Stacey Meshnick, Esq., who supervises the Medicaid Department at the firm. The firm can be reached by calling 718-261-1700, 516-466-4422, or toll free at 1-877-ELDER-LAW or 1-877-ESTATES.
