Trusts are a valuable estate planning tool; they may also be used to protect one’s assets from creditors which can be very helpful for business owners. One of the many benefits of establishing a trust is the avoidance of probate. Unlike a will, which becomes public after the death of the maker, a trust remains confidential, and if properly used, all the maker’s property is within a trust.
Common Types of Trusts
Trusts can fall into a variety of categories in order to serve different goals, such as revocable & irrevocable trusts. Here is a list of different types of trusts that are most common.
- Living or inter-vivos trust – the maker of the trust, usually the same as the initial trustee, may transfer all their personal property into a living trust. During their lifetime, they use the assets just as they would use them outside the trust. Upon their death, the successor trustee, much like the executor of an estate, transfers the assets to the beneficiaries who are named in the trust.
- Revocable trust – these are trusts, that once established, may be modified, or revoked at any time. Unlike many other types of trusts, these will not protect the trustee from creditors; although the creditor would have to petition the courts. Most people prefer using a revocable trust simply because it allows them more control over their assets while they are alive.
- Irrevocable trust – this type of trust, cannot be altered by the trustee. Once property is put into an irrevocable trust, it may not be removed, even by the trustee. The beneficiaries of these trusts may remove assets at any time, depending on the limits placed by the initial trustee. There are limited circumstances where this type of trust may be beneficial in estate planning.
- Asset protection trust – for those who have significant wealth, or businesses, these trusts offer more protection from creditors. In most cases, these trusts are set up offshore, and in most case are irrevocable for a specific period of time. The initial trustee has no control over the assets until the revocation date expires.
- Supplemental needs trust – special needs trusts are set up by those who have the responsibility to care for someone who has extensive medical, or other special needs. The primary purpose of these trusts is to ensure their eligibility for Medicaid, and to provide supplemental income for such person after the death of the caregiver. In most cases, any remaining assets, at the time of the beneficiary’s death, may be used to repay for the care of the person, including Medicaid paybacks.
- Charitable remainder trust – charitable trusts may name one or more charities as beneficiaries. The charities of choice receive the benefits upon the death of the maker. However, during the time the maker is alive, they may also receive tax benefits from the property transferred to the charitable trust.
- Testamentary trust – unlike other trusts, a testamentary trust becomes effective on the date of the death of the maker. Typically, these trusts provide a specific set of circumstances under which the beneficiary may access the assets such as reaching the age of majority, or reaching another specific age. Until the time such restrictions are met, a trustee, who has a fiduciary responsibility, is in charge of the assets.
- Qualified personal residence trust – whether it is a vacation home, or your personal residence, this type of trust is used to allow you to occupy the home for a specific period of time, and then transfer the ownership to your children. This trust has some unique features; you may not be living in the house until your death or the home will go through the probate process, potentially negating the purpose of the trust.
- Asset Preservation and Trusts – Depending on your personal circumstances, a New York estate planning attorney can help you determine if one, or more types of trusts meet your specific needs. When used effectively, a trust can help preserve your privacy, minimize estate and gift taxes, and preserve your assets in the event of a lawsuit, or judgment.
Getting Started with Your Estate Planning
Every person has a need for some type of estate planning. It is always important to remember your estate planning attorney should focus on your current financial status, but should also determine what your wishes are for the disbursement of your assets upon your death. Only then can an effective estate plan be prepared to meet your needs.
Small business owners, couples, and singles in New York who have yet to establish an estate plan, and believe they may need to have a trust established, should contact Attorney Steve Krishtul. We can help you set up a trust that meets your unique needs.