Most people are aware of a last will and testament, but did you know that there is an alternative to a will when it comes to estate planning? This option is called a living trust, and it allows the creator to exercise specific control over their assets with special consideration to family dynamics.
While living trusts allow for a greater degree of control over an estate, they are often more complicated than a will. While some individuals have a situation that is better suited for a living trust, others might find them unnecessarily complicated given the size or lack of complexity in their estate. This article will explore what a living trust is, how to create one, and how to decide whether a living trust is right for your estate.
What Is a Living Trust?
A living trust, sometimes referred to as an “inter vivos” trust, is a trust that is created while the creator is still alive. The beneficiaries named in the living trust will receive their inheritance under the care of a trustee, assigned by the living trust.
There are two types of living trusts: revocable and irrevocable. A revocable trust can be modified at any time, and the creator can be designated as the trustee, with a “successor trustee” also assigned to take on the role of trustee once the creator passes away. This successor trustee will then distribute the estate based on the instructions left within the living will, which becomes irrevocable upon the death of the creator.
An irrevocable trust cannot be modified once it is created, meaning that the creator will often need to give up a certain amount of control over the assets they list. The benefit of an irrevocable trust is estate tax savings, but this option is often less popular than a revocable trust due to the renouncing of control over particular assets that comes with it. It’s also important to note that the current federal estate tax is set for any value of an estate above $12,060,000 for individuals, and $24,120,000 for couples. Unless your estate will have a value higher than these amounts, there is no need to worry about federal estate taxes specifically. In New York, however, the state’s estate tax exemption is lower than the federal cut off. In fact, at $6,110,000, it’s just about half.
Deciding which type of living trust to select is a decision that requires careful consideration. It is best practice to speak with an estate lawyer, who will know what questions to ask to determine which type is right for you.
Benefits of a Revocable Living Trust in New York
In most cases, people create revocable living trusts to avoid the probate process. Probate can be a lengthy and sometimes expensive process where an executor will work with the court system to make sure any debts left by the deceased are paid and the decedent’s affairs are wrapped up according to their wishes. After debts are settled, the executor will distribute the remaining assets to the beneficiaries listed in the will.
Probate is a very public process, and an estate that goes through probate will have the records of the estate and all assets listed available to the public. It is reasonable for both the deceased and the beneficiaries to not want that information public, as it will often list information that parties may want to keep confidential, mostly surrounding the value of financial assets. With a living will that does not go through probate, the distribution process will remain private information in New York state.
Additionally, living trusts allow creators to exercise very specific control over their assets, particularly their financial affairs. Let’s say Anthony wants to leave an inheritance to his three sons. However, he only trusts two of his sons to be responsible with the inheritance while the third son has a history of gambling addiction. Despite the financial irresponsibility of his third son, a living trust will ensure his third son will be cared for without the risk of the inheritance being squandered.
Anthony can set up a trust that will distribute his third son’s inheritance in specific amounts over a specified period thereby lowering the risk that his inheritance will be wasted all at once. In fact, Anthony is allowed great flexibility for any beneficiary when it comes to how and when he wants the inheritance to be distributed.
If someone has property or assets spread across multiple states, then a revocable trust is often a very efficient way to manage the inheritance process. Different states can have different and sometimes conflicting rules over how estates are distributed. Setting up a revocable trust with specific instructions can save money, time, and protect beneficiaries from the headache of dealing with the dispersal of an estate across state lines.
Drawbacks of a Living Trust in New York
While living trusts are a great option for people with large, complicated estates and many potential beneficiaries, there are some downsides that might not make it a great option for everyone.
A living trust is often significantly more complicated than a last will and testament. This means that it will take more time and consideration to draft a living trust. This can lead to a higher likelihood of mistakes for those who attempt to create a living trust by themselves, which is not recommended. The recommended route is to consult with a lawyer during the creation process, but this is likely to lead to higher attorney fees as opposed to creating a will.
A living trust also requires constant attention. Any asset that is not listed explicitly within the living trust will be subject to probate, and the distribution will be authorized by New York state intestacy laws if no instruction is included for the unlisted assets. To avoid this, a living trust must be modified to include any new assets or property obtained by the creator. Not only is this time consuming, but will lead to more legal expenses.
Unless the creator has something called a “pour-over” will, anything not explicitly named in the living trust will still be subject to the state’s intestacy laws. A pour-over will is a catchall document that states that anything not included in the trust at the time of its creator’s passing will be distributed according to the instructions contained in the pour-over will.
Should You Hire an Attorney?
Ultimately, the decision of whether or not to include a living trust in one’s estate plan will come down to the specific details of their assets and family dynamic. When you work with an estate planning attorney, they will review the entire estate to determine whether there are any potential issues that may arise based on the different options available, and advise you as to which method is best suited for your needs.
At Rosenblum Law, we offer affordable flat-fee estate plans customized to meet the specific goals of our clients. We use innovative technology and a hands-on approach to provide an estate plan that covers all the bases and can be created in just a few hours of your time. Call us today to get started with a free consultation.