Establishing a trust is a significant legal and financial decision that can provide long-term benefits for asset management, protection, and distribution. The following questions and answers are designed to offer general information regarding the nature and function of trusts, as well as the distinctions between different types. Individuals are encouraged to consult with qualified legal counsel to determine the most appropriate estate planning strategy based on their specific circumstances.
1.What is a trust?
- A trust is a legal instrument through which one party (the trustee) holds and manages property for the benefit of another (the beneficiary), in accordance with the terms established by the grantor (or settlor). Trusts are commonly utilized for estate planning, asset protection, tax efficiency, and controlled distribution of wealth. They serve to ensure that assets are managed and transferred according to the grantor’s expressed intent, often without court supervision.
2. Are revocable or irrevocable trusts better to protect my assets?
- An irrevocable trust, by contrast, offers greater asset protection. Once established and funded, the grantor relinquishes ownership and control of the assets, which are then legally held by the trust. This separation typically shields the assets, provides a mechanism for Medicaid Planning, avoids the probate process, and allows tax benefits to be realized; however, an irrevocable trust is more difficult to modify or dissolve.
- A revocable trust permits the grantor to amend, modify, or revoke the trust at any time during their lifetime. This type of trust offers administrative convenience, avoids the probate process, and allows for certain tax benefits to be realized.
3. What is the benefit of choosing a trust instead of will? Should I have both?
- A trust provides several advantages over a will, including the ability to avoid probate, maintain privacy, tax benefits for real property within the trust, and allows for continuous management of assets after death. A will, on the other hand, serves to direct the distribution of any assets not placed into a trust and to appoint guardians for minor children, but may not avoid the probate process.
- In most cases, individuals benefit from having both a will and a trust. The trust manages and distributes assets efficiently, while the will ensures comprehensive coverage of all aspects of an estate.
4. Can a trust be contested?
- Yes. Although less common than will contests, a trust can be challenged under certain circumstances. Grounds for contest may include fraud, undue influence, duress, coercion, or lack of capacity at the time the trust was executed. A properly drafted and executed trust, prepared with the assistance of experienced legal counsel, significantly reduces the likelihood of successful challenges.
5. What can go into a trust and is it different for each kind?
- A wide range of assets may be transferred into a trust, including real property, funds from financial accounts, investment portfolios, or business interests. The selection of assets depends on the trust’s purpose and structure.
6. Why choose a trust instead of joint ownership?
- While joint ownership can transfer property automatically to a surviving co-owner, it often presents legal and financial risks, such as exposure to the co-owner’s creditors, divorce proceedings, or judgments. Establishing a trust provides greater control, flexibility, and protection, allowing the grantor to determine how and when assets are distributed. Additionally, trusts preserve privacy, avoid probate, and can protect beneficiaries who may be financially inexperienced or vulnerable.
7. What are the costs involved in setting up and maintaining a trust?
- The cost of creating a trust depends on your unique situation and the complexity of your assets and their distribution. However, it is not uncommon for attorneys to charge at least a few thousand dollars, on a flat fee basis, to draft a trust.
- Ongoing costs for maintaining a trust may depend on whether any amendments are made over time.
8. What is Medicaid Planning in New York?
- Medicaid Planning is the process of arranging your finances and assets to help you qualify for Medicaid coverage for long-term care while protecting what you own. In New York, this often involves reviewing income, property, and savings to ensure they meet Medicaid’s strict eligibility limits. Planning ahead—ideally several years before care is needed—can help preserve assets for a spouse or heirs while ensuring access to necessary care.
9. Does a revocable or irrevocable trust help with Medicaid planning in New York?
- For Medicaid purposes, an irrevocable trust is generally more beneficial than a revocable trust. Assets in a revocable trust are still considered yours, so they count toward Medicaid’s asset limits. In contrast, assets placed in an irrevocable trust are typically excluded from your countable resources. This can help protect those assets from being used to pay for long-term care. It’s important to set this up carefully with legal guidance.
Legal Disclaimer and Next Steps
The information provided above is for general educational purposes only and does not constitute legal advice. Laws governing trusts and estate planning vary by jurisdiction, and the suitability of any strategy depends on your individual financial and personal circumstances. To ensure your estate plan fully protects your assets and reflects your intentions, we recommend consulting with an experienced estate planning attorney.
If you would like personalized guidance or assistance establishing a trust, please contact Sabrina Rabban, Esq. PLLC at 516-452-8198 or fill out the form below to schedule your free consultation. Our legal team can help you design a plan tailored to your specific goals and needs.