Irrevocable trust in New York state

One of the main estate planning documents are trusts. In this article we will tell you exactly what is an irrevocable trust in New York State. In addition, we will discuss what it entails and what are its main features. Read on! 

If you need advice in planning for your future, at Ortiz & Ortiz we have New York trust lawyers who have been serving the community for over 50 years. In New York we can assist you in our Manhattan or Queens offices, but we also offer virtual consulting if you prefer. Write to us and tell us about your case today! 

 What is an irrevocable trust in New York state in 2021

Planning for the future when you are no longer around or can no longer decide for yourself is undoubtedly a difficult task. Deciding who will be the person who will manage and take care of all your assets after your last wishes, may involve some risks. How to choose that person and under what role? In this article we tell you what is an irrevocable trust in the State of New York. But first, let’s start with the basics: What is a trust? 

What is a trust? 

A trust is an estate planning tool. It is an agreement between its creator, also known as the settlor, and the trustee. The trustee is a trusted person who is appointed to manage your assets on behalf of a third party or multiple beneficiaries until they are able to do so themselves. 

breach of fiduciary duty

The trustee will not act in their own interests, but instead based on what you have indicated at the time of your death or previously in a will. Read what happens when there is a breach of fiduciary duty.

Note: Consider other documents or figures that may be useful to you when planning for your future. Among them, the power of attorney and the executor of state in New York. In addition, we recommend that you fully understand the difference between a trust and a will. 

Who participates in the trust?

  • Settlor or grantor: is the person who creates the trust agreement and places their assets in the trust.
  • Trustee: is the person appointed by the settlor to administer and distribute the assets properly among the beneficiaries and based on the settlor’s will. . 
  • Beneficiary: is a person or organization that will receive property or assets as indicated in the trust. 

Like a will, the trust is a document that is created based on the settlor’s needs. It is not standard or uniform for everyone. There may even be many reasons for creating a trust, which will depend on the goals you have for your estate.

Note: One of the most well-known estate planning tools is the will. Read our article on Testate vs intestate succession.

Duties owed by the trustee by law in New York

If you are reading this article you are most likely thinking about making a trust. Here are the duties of a trustee at law in New York. Keep this in mind when entrusting that person with the estate planning of your assets, property and other personal property. 

  • Manage the trust assets during the settlor’s lifetime and after their death, as long as the trust exists. This is a responsibility that you should give to someone in whom you have full confidence, but also someone who has the knowledge to make the right decisions while being able to properly manage your entire financial situation. 
  • Manage a bank account for the trust. It should be an account attached to the one the trustee may have for his personal use. 
  • Maintain trust records.
  • Pay the trust’s bills.
  • Distribute the trust assets according to the will established by the settlor in the agreement document.  
  • It must also designate a “successor trustee” for when the trustee dies.

What can a trust contain?

Trusts can contain a wide variety of properties, real estate, personal property, bonds, stocks, entire businesses and companies among other things. However, there are some assets that need not be placed in a trust. For example, retirement accounts and other accounts or assets that already have beneficiaries named in the event of death. However, this is something an estate planning attorney can advise you on. 

Advantages of a trust as part of an estate plan: 

  • Avoid probate: it is going to allow you to plan how your assets will be distributed to individuals and organizations. When assets are transferred through a trust, they are given to beneficiaries outside of the probate process. 
  • For beneficiaries with special needs: Some trusts allow trust beneficiaries to have access to assets while the remainder of the estate is being settled. Ensuring this financial continuity is critical when there is a spouse dependent on the decedent’s estate or when there are minors or children with special needs.
  • Protect beneficiaries from themselves: Many times young adults legally inherit assets and much of the estate. However, they do not yet have the capacity to handle or manage large amounts of money or businesses. A trust can provide for the transfer of those assets when they reach a certain age or when they have reached a particular milestone in life. 
difference between executor and trustee

If you want to go even deeper into the figure of the trustee, read our related articles: Difference between executor and trustee, and Difference between executor and administrator of the estate.

What does it mean that the trust is irrevocable? 

There are two options when creating a trust. It can be a New York revocable living trust or irrevocable trust in the state of New York. Choosing one or the other will depend on your long-term objectives. For example, the revocable trust is an agreement that can be modified during life. It should also be noted that the revocable trust is not permitted in all states, although New York is one of the states that allows it. 

When we talk about the irrevocable trust it means that it is an agreement of a permanent nature. That means that the assets that go into the trust are outside the control of anyone other than the trustee. This type of trust is generally used to protect loved ones who are named as beneficiaries in the document. 

Types of New York Irrevocable Trusts

  • Irrevocable living trust or inter vivos trust: The settlor transfers assets to the trust while living. This is done by re-titling each asset. This means that the trust is created and activated during the settlor’s lifetime. This type of irrevocable trust results in one of its main advantages: that the assets do not have to go through the probate process. 
  • Irrevocable testamentary trust: It is created during the settlor’s lifetime but as part of the will. This means that the trust is already created but is activated only after death and is administered according to the terms of the will. This type of irrevocable trust works when you want to name a trustee to manage or administer property or other assets on behalf of a minor in the future. 

Characteristics of the irrevocable trust in the State of New York

  • Assets of the estate are transferred to a beneficiary. The settlor’s assets that are placed in the trust are transferred to the beneficiary designated in the document. There is no probate process. 
  • The assets are outside the scope of estate taxes. The assets that remain in the name of that beneficiary are, for the most part, outside the scope of inheritance taxes and probate. 
  • They are irrevocable. As the name implies, the assets transferred through this instrument are irrevocable. This means that the settlor or grantor cannot change them once they have been executed. In this sense, it is worth noting that once the trust is created, the grantor loses all control over those assets.
  • There is no going back. The grantor can no longer make changes to the trust or dissolve it. There are no longer any legal claims on the trust’s principal or its income or earnings.
  • Protects assets from a legal judgment against you. Putting assets in an irrevocable trust can protect those assets from a lawsuit. This is very advantageous for professions that are often subject to lawsuits for negligence or claims. For example, doctors, accountants, architects, lawyers, among others.
  • The language of the trust agreement does matter. If you need nursing home care or home care, you should be aware that state and federal Medicaid laws have strict requirements related to trusts. If a trust does not meet regulatory standards it could become vulnerable in determining Medicaid eligibility. 

Note: You may also be interested in our articles on Undue Influence of wills and Steps to contesting a will.

Irrevocable Trust Modalities: 

Giving up control of assets you built up over a lifetime is a decision that requires careful deliberation. You need to evaluate the purpose for which you are making the irrevocable trust and, in addition, consider the tax benefit the decision might have.  

new york irrevocable living trust
  • Trusts for minors: Many people leave their money to grandchildren or children in a trust. They do this as part of an estate plan. The purpose of this irrevocable trust is to ensure that the money is there for when that beneficiary, i.e., children or grandchildren, become old enough to be able to manage it on their own. Sometimes it is established that the money will be given to them once they reach a milestone in life such as finishing school, college or until they get married. 
  • Special Needs Trusts: This type of trust is used when you want to leave property, money or secure a certain financial situation for a person with special needs. Many people with special needs receive government assistance and when they suddenly inherit money, they may not qualify for government assistance. The irrevocable special needs trust becomes relevant to protect those individuals’ government benefits. 
  • Marital trusts: Some married couples include trusts in their wills for the benefit of the spouse. There are two reasons for this. First, taxes, as tax exemptions can be taken advantage of. Second, for property protection.
  • Life insurance trust: used for the purpose of transferring life insurance proceeds to your estate. This is to avoid estate taxes. 
  • Medicaid Asset Protection Trust: According to a government site, more than 70% of seniors will someday need long-term care in a nursing home or skilled nursing facility. It is common knowledge that these places in New York are expensive. If you think Medicare will pay your bill, you should know that the program only pays for seniors who have financial needs. An irrevocable trust could help you save that money for that time, or it could protect your assets when you apply for assistance. 

Note: You may also be interested in: If a person dies who pays their debts, What happens to the joint account with a deceased parent and Life insurance with no beneficiary.

Advantages and disadvantages of the irrevocable trust in the state of New York

Advantages: 

  • Protect assets and property for a healthy spouse and family members, children, grandchildren. As we said earlier in this article, the irrevocable trust serves to secure a future for the spouse and children. 
  • Avoiding probate. If the settlor dies, there is no need for probate. The transfer is much simpler than when there is a testate succession. 
  • Avoid the risks of placing assets in the name of children. Instead of leaving assets and other property in the name of children, through the irrevocable trust it can be stipulated that they will be transferred once those children reach a certain age. 
  • Inheritance tax planning. Once the trust is created the assets are part of the trust and you control them. This means that the former owner of the assets will not owe tax on the assets held in the trust during their lifetime nor are they part of the taxable estate at death. 
  • Estate planning in the event of disability. If there is a family member with a disability, they can be assured of a financial situation without preventing them from continuing to receive government assistance. 
  • Peace of mind about the future. If you want to secure your future or a nursing home stay, a trust is a good way to do it. Plus, you won’t pay taxes in the interim.
  • Protect yourself from lawsuits, judgments or other litigation. If you work in a profession where there may be claims such as medicine or law, the irrevocable trust could protect your assets from a lawsuit. The same in case you have debts, as this figure could protect you from creditors.

Disadvantages

  • Inflexible structure: there is no going back, no room for maneuver. After transferring the assets to the trust, control over the assets is lost. In some cases a semi-flexible structure can be left if the trustee is given permission to make changes or if those assets are transferred to another trust. To look at different options, it is advisable to seek advice from an experienced trust lawyer who can give you a clearer picture. 
  • Loss of control over the assets: Once the assets and property are transferred to the trust, you will not have the control to recover or manage them. However, depending on how the trust is organized, you may receive income from the trust. In the event that you are in financial distress, you will no longer be able to access those assets, even to sell them. This is something to keep in mind when deciding on an irrevocable trust.
  • Unforeseen changes: One of the advantages of an irrevocable trust is that you can secure your future, that of your spouse, children, grandchildren, disabled family members, among others. However, planning also has a palpable disadvantage. You will not be able to take care of unforeseen events that you may have in life since you decide to create the trust and transfer your properties, assets and goods. In that sense, keep in mind that if you decide to create an irrevocable trust, you will not be able to change it later to align it with the circumstances you are living in. 

Inheritance Taxes and New York Gift Limits

Like many other U.S. states, New York has a state estate tax. In other words, when someone dies and is a resident of New York or owns property there, their estate may be subject to taxation. These levies may be imposed by the federal government, but also by the state of New York. 

The federal tax, where applicable, must be paid during probate of the estate and before the assets are transferred to the intended beneficiaries. However, one way to avoid this is by transferring those assets during life through a trust or, alternatively, by making charitable gifts to decrease the tax. 

New York State Irrevocable Trust Attorneys

Planning for your future, choosing the best formula for doing so and, above all, deciding who will be the person to carry out your will are difficult decisions to make. Naming the right trustee can take some time and it is best to do so with all the information available. 

At Ortiz & Ortiz we have experienced estate planning attorneys who can advise you on all of this and help you find the best way to secure your future and that of your family. 

  • We listen to your case and what your estate planning objectives are.
  • We present you with all the possible alternatives and what each one implies.
  • We guide and advise you in making the best decision.
  • We draw up the trust document, including each of your wishes.

We have offices in Queens and Manhattan, but if you live in another area of New York we can schedule a virtual appointment to review your case as soon as possible. Contact us!