When people begin thinking about estate planning, they often start with a Will. That makes sense, as a Will is one of the most widely known tools for distributing property after death. However, as the planning process continues and individuals begin learning more about how to protect their assets, reduce taxes, and provide for loved ones into the future, another planning vehicle often enters the conversation. This planning option is known as an irrevocable trust. Please continue reading to learn more about irrevocable trusts and when they may be worth considering as part of your estate plan.
New York Irrevocable Trust FAQ
Q: What is an irrevocable trust?
A: An irrevocable trust is a type of legal arrangement in which a person transfers ownership of certain assets into a trust that, generally speaking, cannot be modified or revoked once it is created. The person who establishes the trust is known as the grantor. Once assets are placed into the trust, they are no longer considered the grantor’s personal property for one or more purposes. Instead, they are managed by a trustee, who is responsible for administering those assets for the benefit of the individuals named as beneficiaries in the trust document.
Q: How is an irrevocable trust different from a revocable trust?
A: The primary difference between the two comes down to control. A revocable trust can usually be changed, amended, or even terminated by the person who created it during their lifetime. An irrevocable trust, on the other hand, is designed to be far more permanent. After the trust is established and assets are transferred into it, making changes is somewhat more difficult and, in some cases, may require the approval of the trust’s beneficiaries or even a court.
Q: Why would someone create an irrevocable trust?
A: There are several reasons a person may decide to establish an irrevocable trust as part of their estate plan. In general, the two main purposes of irrevocable trusts are to (1) remove assets from your taxable estate (in order to reduce your beneficiaries’ potential estate tax liability); and (2) to protect assets from potential creditors – most commonly long-term care expenses.
Q: What kinds of assets can be placed into an irrevocable trust?
A: Many different types of property may be transferred into an irrevocable trust. For example, individuals frequently place real estate, investment accounts, business interests, or life insurance policies into these trusts. In some cases, valuable personal property may also be included. The specific assets that should be transferred will often depend on a person’s financial situation and long-term planning goals.
Q: Can I still use or benefit from assets that are placed in the trust?
A: Generally speaking, when assets are placed into an irrevocable trust, the grantor gives up direct ownership and control of those assets. However, this does not necessarily mean the grantor’s family cannot benefit from them. In many situations, the trust may provide distributions to spouses, children, or other loved ones, depending on how the trust document is written. Additionally, depending on the purpose of the Trust (asset protection versus estate tax protection), the Grantor may retain limited rights to income or occupancy of a home.
Q: Does an irrevocable trust avoid probate in New York?
A: In most cases, yes. When assets are properly transferred into a trust, they are owned by the trust itself rather than by the individual who created it. Because of this, those assets usually do not need to pass through probate in the New York Surrogate’s Court. Instead, they can be distributed according to the instructions contained within the trust.
Q: Who manages the assets inside an irrevocable trust?
A: Once the trust is created, the trustee becomes responsible for managing the assets. The trustee may be a trusted individual, such as a family member or friend, or it may be a professional trustee or financial institution. Regardless of who serves in this role, the trustee has a legal obligation to follow the instructions in the trust and act in the best interests of the beneficiaries.
The reality is that every estate plan should be crafted to the unique circumstances of the individual creating it. If you would like to learn more about irrevocable trusts or are interested in creating a comprehensive estate plan, contact Lacy Katzen LLP today.
