Various types of trusts are used in the Estate Planning process, for many different reasons. This is due to the fact that trusts are extremely useful tools for managing property, while also providing a high level of flexibility. A trust can be created during a person’s lifetime, or upon death. Trusts used for Estate Planning can be either Revocable Trusts or Irrevocable Trusts, which differ in more than just their names.
A Revocable Living Trust provides for the orderly management of the assets placed in the Trust during the Settlor’s lifetime, as well as providing for the distribution of those assets upon death. By placing assets into a Revocable Living Trust, those assets can transfer on death without going through the probate process. Although the probate process in New York State is relatively simple, that may not be the case in other states in which property may be held. Any out of state property owned by the Settlor at the time of his or her death, if there is no beneficiary listed on that property, must be administered through the probate process in that state, which could add time and expense to the administration of an estate. A Revocable Living Trust may be a good alternative in that situation, as any Trust property, in any state, can be distributed by the Trustee upon the Settlor’s death without a probate proceeding.
Additionally, a Revocable Living Trust may be revoked by the Settlor at any time during his or her lifetime. Any individual of the Settlor’s choosing can be appointed to act as Trustee, even the Settlor. This person manages the trust assets during the Settlor’s lifetime and will distribute them in accordance with the terms of the Trust upon the Settlor’s death, at which point the trust becomes irrevocable. If you are the Trustee and Settlor of a Revocable Living Trust, a successor Trustee must be appointed in the event of your incapacity or death. This type of trust is extremely flexible in that assets can be added or removed at any time at the discretion of the Settlor.
An Irrevocable Trust is typically used to protect assets during the Settlor’s lifetime or to provide a vehicle for a transfer done for estate tax planning purposes. Irrevocable trusts allow for the same benefits of asset management as a Revocable Living Trust, but also provide an extra layer of asset protection. When creating an Irrevocable Trust, the Settlor generally will not be the Trustee. In order for the Trust to maintain its protection benefits, the Trustee should not have the ability to invade the principal on the Settlor’s behalf. However, this does not prohibit the Settlor from receiving the income generated from any of the trust property. Just as with the Revocable Living Trust, any assets placed in an Irrevocable Trust are not subject to a probate proceeding.
If you are interested in discussing which type of trust is best for you, contact Katz, Smith & Chwat PC to set up an appointment.
Posted in: Estate & Trust Administration