If you've started the estate planning process, you've probably discovered that there are various legal documents that could be used to pass on your estate to your heirs. In addition to making a last will and testament, you could also create a trust to protect your assets and ensure they are disbursed according to your wishes. Each type of trust has its advantages and disadvantages, so you should explore your options carefully with an estate planning attorney before setting one up.
Specialized Revocable and Irrevocable Trusts in New York
A living trust (created during your lifetime) can be either "revocable" or "irrevocable." Revocable trusts give you the ability to revoke or change the terms of the trust at any time, as well as exercise control over the assets in the trust.
Irrevocable trusts relinquish control and ownership over everything held in the trust. Once the trust document is valid, the assets in it are no longer yours. These types of trusts are commonly used to protect family assets from estate taxes or to qualify for public benefits.
There are numerous specialized revocable and irrevocable trusts, and each one has a wide variety of options to allow trust makers to achieve a specific goal. For instance, some commonly-used trust instruments include:
- Irrevocable life insurance trust. This type of trust allows you to take your life insurance out of your estate. Since it's an irrevocable trust, removing the policy from your estate nullifies your ownership rights, meaning you cannot borrow against the policy or change beneficiaries. Upon your death, the proceeds from the policy will be distributed to your beneficiaries as tax-free income. This can provide close family members with much-needed funds or be used to pay any remaining estate costs.
- Charitable Remainder Trust (CRT). The most common type of charitable trust is a life income gift trust. You transfer your assets into the trust during your lifetime, and you (or a beneficiary) receive tax-free income from the trust for the rest of your life. Since the remaining funds in the CRT pass to the charity, you will be given a charitable deduction for a portion of the transfer as well as an income tax deduction.
- Charitable Lead Trust (CLT). This type of charitable trust allows you to choose charities that will receive interest from the trust assets for a set period of time. After that period has expired, whatever is left in the trust will pass to family members or other beneficiaries.
- Special needs trust. A special needs trust is created specifically to provide funds throughout the life of a loved one who has a disability. The trust assets supplement any benefits the individual with special needs receives from Medicare, Social Security, or other government programs.
- Dynasty trusts. Dynasty or generation-skipping trusts allow you to transfer a large amount of funds tax-free to your grandchildren (or beneficiaries who are at least two generations younger than you).
- Qualified personal residence trusts. These trusts remove the value of your home or vacation property from your estate. They are commonly used in areas with booming housing markets or where dwellings are likely to appreciate in value.
- Qualified terminable interest property trusts. If your family includes remarriage(s), children from a prior marriage, or stepchildren, you could use a qualified terminable interest property trust to direct your assets to particular relatives. After your passing, your surviving spouse will receive an income from the trust. Once your surviving spouse passes, the remainder of the trust assets will go only to the beneficiaries you specify (such as your children from a previous marriage).
No matter which trust is right for you, you will need to be sure that your assets are properly transferred and retitled in the name of the trust. If assets aren't legally transferred before your passing, the trust will have no effect, and all assets that should have been protected will have to go through probate.
Trusts are highly-flexible, but they're also complex. At Landskind & Ricaforte Law Group, P.C., we take the worry out of estate planning and give you the peace of mind you deserve. Contact us today through our online form to learn how we can help.