When you sit down to create your comprehensive estate plan with your estate planning attorney, the idea of adding a living trust (or several) to your estate plan may come up. Although it was once fairly unusual for the average person to create a trust, trusts are now commonly found in the estate plan of the average person. Before you can decide whether or not a living trust would be a beneficial addition to your estate plan, you need to know as much about them a possible. Discussing your options with an experienced New York estate planning attorney is always your best route to reliable information; however, there are some general answers available to common questions. For example, “who benefits from a living trust?” is something most people need to know before deciding if establishing one make sense.
Trust Basics – The Elements
A trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor (also referred to as a “Grantor”), who transfers property to a Trustee. The Trustee holds that property for the trust’s beneficiaries. The beneficiaries of a trust may be current and/or future. The basic elements required to create any trust, therefore, include:
Testamentary vs. Living Trusts
All trusts are first divided into two types — testamentary and living (formally referred to as an “inter vivos” trust) trusts. A testamentary trust is one that does not activate until the death of the Settlor and is usually triggered by a Last Will and Testament. Parents of minor children often create testamentary trusts to hold their children’s inheritance if they die prior to the children reaching adulthood because minors cannot inherit directly from the estate. A living trust, on the other hand, activates as soon as all the formalities of creation are complete.
Sub-dividing Living Trusts – Revocable and Irrevocable Living Trusts
Living trusts are then divided once again into two categories – revocable and irrevocable. As the names imply, a revocable living trust is one that can be modified or revoked by the Settlor at any time and for any reason whereas an irrevocable living trust can only be modified in certain situations. Testamentary trusts are always revocable given the fact that they don’t even activate until after the death of the Settlor who can always revoke the trust prior to that time.
Living Trust Beneficiaries
The Settlor of any trust decides who the beneficiaries of the trust will be. A beneficiary can be almost anyone, including people, charitable organizations, companies, even the family pet. The Settlor can even make himself/herself the beneficiary of the trust in many types of trusts.
For example, if you create an irrevocable Medicaid trust you might make yourself an income beneficiary so that the trust assets continue to provide you with benefits without being counted against you for purposes of Medicaid eligibility. Likewise, you might create a revocable living trust as part of your incapacity plan. When you create a revocable living trust you are able to appoint yourself as the Trustee and the person you wish to hand over control to as the successor Trustee. You can also make yourself a beneficiary of the trust. Major assets are then transferred into and out of the trust as needed and you will continue to control them as the Trustee, and benefit from them as a beneficiary, unless you become incapacitated. At that time, your successor Trustee will take over automatically as the Trustee of the trust, thereby gaining control of the trust assets. Yet another example of who benefits from a living trust is a Special Needs Beneficiary. A Special Needs Beneficiary may need Special Needs Trust, which allows a child or adult with special needs to benefit from the asset held in a trust while still remaining eligible for much needed assistance programs such as Medicaid and SSI.
As you can see, the benefits of a living trust, as well as the beneficiaries, are only limited by the Settlor who creates the trust.
Please take a moment to download our FREE estate planning worksheet. If you have additional questions or concerns relating to the benefits of a living trust, contact the experienced New York estate planning attorneys at the Law Offices of Kobrick & Moccia by calling 800-295-1917 to schedule your appointment.