Do You Need A Living Trust?By: Roman Aminov, Esq.
Living trusts are a much talked about topic in the field of estate planning, and for good reason. You may have heard financial planners or attorneys mention these trusts as a “must have” item in your planning portfolio but may be confused as to what a living trust really is, what it accomplishes, and most importantly, if you really need one.
What Is A Trust?
A trust is an arrangement in which one person, the trustee, holds legal title to the property of another person or group of people, the beneficiaries. Every trust must have at least a settlor, trustee, beneficiary, and the corpus which is the property placed into trust. A trust document sets out the rules that the trustee has to follow when managing, distributing, and generally overseeing the corpus. A living trust, also known as an inter vivos trust, is a trust which is set up by the settlor (person creating the arrangement and funding the trust) while he/she is still alive (as opposed to being created by a will at their death).
How Does This Benefit Me?
A. Reduces Cost: When a person passes away, assets titled in his/her name pass either under the will or by New York’s intestacy statute which dictates how assets are distributed if there is no will. Either process requires the intervention of the local Surrogate’s Court and, most likely, an attorney. A New York estate attorney will typically charge 3-5% of the total value of the probate estate which is in addition to a similar amount charged by the executor/administrator for marshaling and distributing the assets of the estate . With a revocable living trust, the property which is transferred to the trust passes outside of court and does not have to go through probate. The trustee can distribute the assets almost immediately without the need to get the court or an attorney involved. There is a slightly higher initial fee to set up and fund the trust, but it is usually a fraction of the cost of going through probate.
B. Saves Time: By going through the judicial process of probate, the validity of your will is open to challenges by disinherited heirs and other interested parties. Intestate heirs, also known as distributees, can challenge the validity of a will if they stand to receive more money if there had not been a will at all. The probate/administration process can protract the transfer of assets by months in the best case scenario and years in the worst. This can delay getting your assets to those who need them and costs your estate unnecessary legal fees. Since a revocable living trust is not a public document and does not need to be filed with the court in order to distribute assets, there is less unnecessary delay in transferring the assets since the trust does not need to be probated. You will not have to waste time waiting to get letters testamentary appointing an executor since a successor trustee is appointed automatically by the trust. Additionally, while a living trust can be challenged, it is more difficult to do so than with a will. All this means that your final wishes will be executed as quickly as possible.
C. Give You Control: Since a living trust will be prepared by you, typically in consultation with your estate attorney, you retain full control to specify what will happen to your assets when you pass away. You set the terms, pick the trustees, and direct them how/when to invest, manage, and distribute your assets. Best of all, you retain complete control of the property in the trust while you are alive by naming yourself as trustee. You can enjoy, manage, and sell the property as you would if it was owned in your name. Since the IRS deems living trusts to be grantor trusts, there is no need to obtain a separate tax ID number or file a separate return. Additionally, since the trust is revocable, you can change or even revoke the entire trust any time you wish.
D. Disability Planning: Since the trust can provide for successor trustees in the event that you become disabled or incapacitated, living trusts are a great way to make sure that your finances will be taken care of even if you are not able to manage them. A more detailed article on the benefits of planning for incapacity with living trusts can be found here.
Living trusts are powerful estate planning tools which deserve a serious look by anyone serious about saving their heirs time and money in the long run. Decisions on whether to invest in a revocable living trust are best made in consultation with a qualified New York estate planning lawyer who can sit down with you to evaluate your individual needs. For a free consultation to discuss your estate planning needs, contact the Law Offices of Roman Aminov at (347)766-2685.