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Do You Need a Trust?

A Trust is a legal arrangement between the person establishing the Trust, usually referred to as the Grantor, and the person or entity who manages the assets of the Trust pursuant to the terms of the Trust (the “Trustee”).  The Grantor generally funds the Trust with his or her own assets.  Assets funded into a Trust can be liquid, such as cash or equities, or can consist of real property, or both. There are many types of Trusts, used for various purposes.   A Trust can be established and funded during your lifetime.  Such a Trust is referred to as a Living Trust or inter vivos Trust.  A Trust can also be established at your death through the terms of your Last Will & Testament, known as a Testamentary Trust.  Whether or not a Trust is appropriate for you depends upon many factors, including your estate planning goals, your finances and your family. A Living Trust would be either Revocable or Irrevocable.  A Revocable Trust can be revoked and/or changed at any time in any way during the life of the Grantor.  Income from a Revocable Trust remains taxable to the Grantor and the assets are part of the estate of the Grantor for estate tax purposes.  A Revocable Trust does not provide any asset protection from creditors.  A Revocable Trust is a substitute for a Last Will & Testament.  A major benefit is that a Revocable Trust need not be probated in Court, as does a Will.  It is particularly useful when the Grantor owns real property in another State, thus avoiding the probate of the Will in New York and in the other State.  It is also particularly useful for seniors or those with a disability, thus allowing a co-Trustee or Successor Trustee to manage the Trust funds with ease. Funding an Irrevocable Trust has tax consequences and can be used to reduce the size of the Grantor’s estate for estate tax purposes.  An Irrevocable Trust can be used to own life insurance, keeping the proceeds out of the taxable estate of the Grantor.  We often use an Irrevocable Trust to protect the Grantor’s assets from the Grantor’s creditors. A special type of Irrevocable Trust is a Special Needs Trust also referred to as a Supplemental Needs Trust.  It can be established during the lifetime of the Grantor or at his/her death, through a Will and is specifically designed for an individual who is disabled and receiving government benefits, such as Medicaid.  The assets in the trust are not considered to be available to anyone, including Medicaid, other than the beneficiary of the Trust (the disabled person).  The Trust assets and income can be used for the benefit of the beneficiary without interfering with his/her eligibility for government benefits.   This is a brief overview of Trusts. Whether a Trust would be beneficial is unique to each client based upon their estate planning goals, their finances, and the composition of and relationship with their family members. The establishment of a trust is complicated and everyone should seek legal advised to determine if it is appropriate for them.   Nothing contained in this article is to be construed as legal advice and is NOT intended to be legal advice.