Rochester Living Trust Lawyers

A New York living trust ( also known as an inter vivos trust) is a fiduciary relationship in which the grantor (also known as the settlor) gives the trustee the right to hold title to assets for the benefit of one or more beneficiaries. NY living trusts are designed to help grantors protect their wealth today and maximize their legacy for future generations.

Living trusts are created during the grantor’s lifetime and go into effect while the grantor is alive.  A living trust  is created for the purpose of holding ownership to an individual’s assets during the person’s lifetime, and for distributing those assets after death. By contrast, a will does not take effect until after death. The most common reasons for using NY living trusts are to avoid probate and to preserve assets from nursing home costs. Grantors retain a NY estate planning  attorney to draft the NY living trust document, based on their estate planning and Medicaid planning goals and wishes for the management and distribution of their assets and income.

NY Living Trusts are either revocable or irrevocable. Revocable trusts are used primarily  for incapacity planning purposes and to avoid probate at the grantor’s death ( to reduce court costs and provide privacy). They do not have creditor protection or tax savings benefits. The grantor may change the trust or terminate it  at any time. The grantor has free access to the assets and income of the trust.

Irrevocable trusts are usually created by the grantor to benefit others, such as  children and grandchildren. They are primarily used to hold lifetime gifts for the beneficiaries and to distribute assets following the grantor’s death. Tax planning and asset protection are two common  reasons for using  these trusts which can benefit beneficiaries for multiple generations.  Grantors give up most control of their assets and cannot change the terms of the trust document.

Once the grantor has transferred assets to the trust (“funded the trust”), the trustee is in charge of administering and operating the trust The trustee is responsible for following all directions in the trust document, the investment and protection of the assets in the trust, tax return filings, reporting to the beneficiaries, and making income and principal distributions as directed or permitted by the trust. The trustee must be impartial and independent in dealings with the beneficiaries. One or more individuals or corporations can be trustees. Sometimes  individuals and corporations  serve together as co-trustees.

Although most people set up living trusts to benefit their families, you can name anyone as a beneficiary, including yourself if it is a revocable trust. For example:

• You can place an investment account that has income into a trust and name yourself as beneficiary while you are alive and then, after you die, have the income go to your spouse, children, other relative, friend, and/or charity, until the trust ends and the assets are distributed.
• If you have an illness that is likely to disable you, you can establish a living trust and put the title to your assets into the trust for your benefit, naming yourself as trustee and someone to replace you as a successor trustee when and if you become too disabled to continue as trustee.

In each of these examples, after your death, use of the property or receipt of income from the trust passes to one or more beneficiaries without the need for probate.

Each trust will have one or more individual or charitable beneficiaries. There are two categories of beneficiaries: current and remainder. Current beneficiaries may receive distributions during the term of the trust . Remainder beneficiaries will receive what remains  in the trust when it terminates. The trust document will explain under what conditions distributions may be made to current beneficiaries. Sometimes the trustee has broad discretion to determine when and how much to distribute. For remainder beneficiaries, some trusts will terminate at a specific time, such as when the beneficiary reaches a certain age. When the trust ends, the remaining balance of the trust principal and income is distributed to the remainder beneficiaries.

The grantor of a NY revocable living trust decides whether it can be changed or revoked. A trust that states  it can be changed or revoked is called a “revocable living trust.” In that case, the grantor can easily change or revoke the  trust.

A trust that states it cannot be amended and revoked is an irrevocable living trust. However, the law allows even irrevocable trusts to be amended or revoked under certain circumstances. Medicaid trusts must be irrevocable to preserve assets from nursing home costs.

Life insurance is not entirely “tax-free.” While death benefit proceeds are income-tax-free, they are not estate-tax-free unless the beneficiary is a spouse.  Unless it is structured properly, however, the life insurance proceeds themselves may be taxed. An effective technique to avoid this tax is to create an Irrevocable Life Insurance Trust (ILIT) which will own the policy and direct the distribution of the proceeds at death, leaving the gross proceeds available to satisfy estate taxes and provide support for the surviving partner.

 ILITs provide a tax-efficient way to transfer wealth to your beneficiaries outside of your taxable estate. They are also an effective mechanism for protecting legacy assets from potential creditors for both you and your beneficiaries.  If you’re planning to provide for continued care for a family member with special needs, an ILIT can help you designate  assets for their care without interfering with their eligibility for government benefits. One of the most tax-efficient ways to pay the annual insurance policy premiums is to use your annual gift tax exclusion (currently $17,000 per year for each trust beneficiary) to fund the trust each year. Once the funds are received by the trust each year, your beneficiaries would receive a written notification (these are called “Crummey Notices”) allowing them the option to take those funds as a distribution. Understanding the purpose of the trust, they would decline the withdrawal—making the funds available for the trustee to pay the required insurance premiums.

Alternatively, you could simply transfer an existing insurance policy to an ILIT.  However, if you die within three years of transferring the policy to the trust, the IRS  requires that any insurance proceeds be included in your estate for estate tax purposes. 

For a living trust to take effect, title to the grantor’s assets must be transferred into the trust. For example, title to any bank accounts, stock certificates or real estate owned by the grantor must be transferred into the trust. The grantor must take affirmative steps to transfer assets and fund the trust. Merely executing the living trust document itself will not cause the trust to become funded.

When you create a living trust, you must place your assets into the trust once the trust document is signed.  For instance:

• If the asset is a house, you must execute a new deed transferring the house to the trustees.
• If the asset is a car, you must transfer the title to the trust at the NY DMV.Only revocable trusts, and not irrevocable trusts, may hold car titles.
• If the asset is a bank account, you must transfer the funds to a new bank account in the name of the trust.
• If the asset is a coop apartment, the share certificates and lease must be transferred to the trust with the coop board’s permission.

A New York resident executed a living trust agreement that simply recited that his house belonged to and had been assigned to the trust However, at the time of his death; no deed had actually been executed. Assets that are in a living or “intervivos” trust avoid probate only if they have actually been transferred to the trust. A deed is required to transfer real estate into a trust. Merely reciting in the trust agreement that assets are being assigned to or are held by the trust is insufficient for transferring them to the trust. Therefore, the NY Appellate Division, First Department ruled that the house is part of the probate estate, rather than part of the trust.

A big advantage of a NY living trust is that it does not  go through probate, as does a will. However, there are other estate planning devices which avoid probate, such as a joint tenancy,  life insurance policy, and in-trust-for bank account, and individual retirement, pension or Keogh accounts.

A “pour-over” will is necessary to distribute any property that is acquired in the name of the grantor after the living trust was established, or any property that was not transferred into the trust in the first place. The use of “pour-over,” together with a living trust ensures that assets not held in trust will be distributed in accordance with the wishes of the deceased as spelled out in the trust, and not by the laws of intestacy. A “pour-over” will, like any other will, must go through probate if the decedent dies owning assets outside of the trust which must pass through the will.

There are no substantive income tax advantages in the use of a NY living trust. The grantor is treated as the owner of the trust for income tax purposes, and must report all trust income on his or her personal return under the “grantor trust” income tax rules.

A will becomes a matter of public record during the probate process, and a copy can be obtained from the NY Surrogate’s Courts. A NY  living trust is a private document that is not subject to public scrutiny. However, a “pour-over” will becomes a matter of public record when it is submitted for probate, and the “pour-over” will often incorporates the living trust by reference. The living trust will need to be filed in NY  Surrogates Court with the pour-over will.

Yes. A trust can be contested in a special proceeding.

Yes. High pressure sales pitches for living trusts are surfacing throughout New York. Unscrupulous living trust salespeople charge elderly consumers thousands of dollars for a set of pre-printed legal forms. In many instances, because all consumers  are sold the same package, the living trust  may be ill-suited or even contrary to their’ estate planning needs. In addition, the consumers are provided with little or no personal guidance on how to execute the forms, or how to fund the living trust. Instead, after having spent large sums of money and being assured that they would receive free legal assistance, the seniors are then told to consult with their own attorneys. These consumers are left thousands of dollars poorer and with no effective estate plan. Even worse, the absence of an effective estate plan may not become apparent until after the scam victims have died, when the harm has become irreparable.

1. Fiduciary Duties – you are held to a very high standard in a fiduciary role in relation to the beneficiaries or remaindermen of the trust.
2. Trust’s Terms – be sure to read the trust terms carefully and abide by the trust’s directions
3. Investment Standards – you must make prudent investments that consider the interest of current and future beneficiaries alike.
4. Distributions – sometimes you will have discretion in what distributions you make. You should consider the beneficiary’s other sources of income along with his/her needs. You also need to be able to say no if a distribution is not for the well being of the beneficiary or consistent with the trust terms.
5. Accounting – you need to keep track of all income to, distributions from, and expenditures from the trust. You may be required to give an accounting to the beneficiaries annually.
6. Taxes – be sure to keep good records for when you need to file an annual tax return and pay taxes for the trust.
7. Delegation – You cannot delegate your responsibilities, but you can delegate some of your functions as trustee. Be sure to delegate these functions prudently.
8. Commissions – As trustee, you are generally entitled to commissions for you services depending on state law, terms of the trust agreement, and amount of the trust principal and income.

SNTs  are legal tools used to help disabled people keep more of their income or assets without losing their public benefits.SNTs were originally invented to allow parents of children with developmental disabilities to provide for them after they grow up without making them ineligible for public benefits (like SSI and Medicaid). Ordinarily, if a parent set up a trust fund for their disabled child with $100,000 in it (for example), this would make them ineligible for public health insurance such as Medicaid. To avoid this, lawyers created special trust funds, which are structured in such a way that they do not impair a person’s eligibility for public benefits. They supplement the disabled beneficiary’s benefits, rather than replace them; hence the name Supplemental Needs Trust.

Another way that SNTs are used is to shield excess income for Medicaid purposes. By using an SNT in this way, a disabled Medicaid recipient can actually keep the benefit of almost all of their income, rather than having to pay a portion of it towards the cost of their care (e.g., for home care services). Income placed in an SNT can also qualify someone for a Medicare Savings Program.

An SNT can also be used where a disabled person under age 65 receives a lump sum (such as a retroactive Social Security award or personal injury settlement). Ordinarily, this asset would make the individual ineligible for Medicaid, SSI, and other benefits. By transferring it to an SNT, the person can remain eligible for all their benefits, and use the money in the SNT to supplement their regular income for years to come.

A Medicaid trust is a trust established by an individual usually for him/herself or for the individual and spouse which contains terms that make the assets transferred to it “unavailable” to pay for the individual and/or his spouse’s home care or nursing home care.

Why create a Medicaid Trust? Transferring assets to a Medicaid Trust is an effective strategy for protecting an individual’s assets from the high cost of home care and nursing home care.

Can I change my mind after I create a Medicaid Trust? Generally, no.  A Medicaid Trust is an irrevocable trust.  Except in rare cases, it cannot be revoked or amended, nor can assets be transferred from it back to its creator.

How are assets managed when part of a Medicaid Trust? Assets are managed by a person chosen by the creator of the trust known as the “trustee”.  S/he has a duty to act in the best interest of the trust beneficiaries.  The creator of the trust may give the trustee very broad or very narrow powers.  The trustee has the duty to invest the trust assets wisely.

Who can be a trustee for a Medicaid Trust? The creator of the trust may name anyone to be a trustee, however, an individual under age 18, incompetents, nondomiciliary aliens, and felons are not eligible.

• The trustee should be someone that the creator of the trust feels is a mature and responsible person. He or she should also have at least some business and investment experience.
• The creator of a Medicaid trust may not be its trustee.

Are Medicaid Trust assets considered when Medicaid eligibility for Long-Term Care is evaluated? If at least 60 months has passed since the assets were transferred to the Medicaid Trust, the assets are not considered.  However, the income earned by the assets is considered.

What are the advantages of creating a Medicaid Trust?

• Transferring assets to a Medicaid Trust is an effective strategy for protecting assets.
• The trustee must act in the best interest of the trust beneficiaries and must invest the trust assets wisely.
• Outright transfers may not be appropriate because there are no children or close relatives, or a person may not completely trust an ultimate beneficiary or may doubt his maturity, wisdom or ability to manage the assets.
• The use of a trust may reduce the time and expense associated with the administration of a person’s estate.
• The use of a trust may save income, gift and/or estate tax.

What are the disadvantages of creating a Medicaid Trust?

• A Medicaid Trust is irrevocable. Once it is created it cannot be revoked or amended, nor can assets be transferred from it back to its creator.
• The creator of a Medicaid Trust is generally entitled to only the income generated by the trust assets, not the assets themselves.
• The transfer of assets to a Medicaid Trust is subject to a 60-month look back period.
• IRAs and certain pensions cannot be transferred to a Medicaid Trust.
• The drafting of a Medicaid Trust is more expensive that outright transfers. There are also certain ongoing administrative responsibilities.

What are the advantages of deeding your home to a Medicaid trust versus a life estate deed? With the irrevocable living trust for Medicaid asset protection, your home is deeded to the trustee(s), instead of directly to your children and thus, avoids these disadvantages of the life estate deed:

• If you rent out your home while you are on Medicaid, any net rental income that you receive is counted in determining your eligibility for Medicaid.
• If your child files for bankruptcy, a large sum of money would have to be paid to the bankruptcy trustee.
• If your child dies, his or her remainder share may pass through his estate to his spouse or children.
• Judgments against your child would be liens against your house.
• If you decide to sell your home and buy another home, you would have to start all over again with the Medicaid five-year look-back period.
• If you sell your home while you are on Medicaid, part of the sale proceeds will be a countable resource for determining Medicaid eligibility.

You will lose your $250,000 ($500,000 joint return) exclusion on the capital gains from the sale of your primary residence.