Like many people, you may be considering the addition of a trust agreement to your comprehensive estate plan. Although a Last Will and Testament typically provides the foundation for an estate plan, most estate plans also include additional tools and strategies aimed at achieving a wide range of estate planning goals. Trust agreements are a common addition, in part because of the numerous types of specialized trusts available and the flexibility trusts offer. If you plan to include a trust agreement in your estate plan one of the first decisions you will need to make is whether to create a revocable or an irrevocable trust.
Trusts are first divided into testamentary trusts and inter vivos, or living, trusts. A testamentary trust is one that does not take effect until your death. A living trust, on the other hand, will take effect as soon as all the formalities of creation are complete and sufficient assets are transferred in to fund the trust. Living trusts are further divided into revocable and irrevocable trusts.
As the name implies, a revocable trust is one that can be modified or revoked by the maker at any time and for any reason. An irrevocable trust, however, cannot be modified, changed, or revoked by the maker once the trust takes effect. Well, there are instances where it can be modified, however making changes to an irrevocable trust becomes very complicated. That means that once you create an irrevocable trust it is difficult to:
- Add or delete a beneficiary
- Change the terms regarding the distribution of assets
- Remove assets from the trust
- Change the Trustee
Extra care should be taken when creating an irrevocable trust because of the fact that generally changes cannot be made post-creation. In most states, a court may be able to modify or even terminate an irrevocable trust but only under specific circumstances, such as when the terms of the trust are impossible or illegal, or when the assets held by the trust are of such little value that it makes more sense to terminate the trust and distribute the assets.
It is equally important to remember that once an asset has been transferred into an irrevocable trust it is no longer part of your estate. While this often provides tax and/or asset protection benefits, it also means you no longer have an ownership interest in the asset.
Because of the complexity and finality of an irrevocable trust it is always best to consult with an experienced New York estate planning attorney before getting started on one. Contact the experienced New York estate planning attorneys at The Law Offices of Kobrick & Moccia by calling 800-295-1917 to schedule your appointment.