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If you are interested in the various inheritance modalities available in the United States, you must have heard about the New York Revocable Living Trust. This alternative has interesting advantages. And in this article we will explain all the details that you should know before making any decision.

We know that inheritance and trust laws can seem confusing. There are many concepts and different alternatives. Don’t worry, at Ortiz & Ortiz, our trust lawyers in New York City are ready to answer all of your questions.

Definition of New York Revocable Living Trust in 2021

Let’s start with the basics. There are quite a few legal and tax concepts in the planning process that you should know before we go into detail.

What is a trust?

The trust is an estate planning tool. It is an agreement between its creator, also known as the settlor, and the trustee. The trust is made to protect and manage the interests of the settlor’s estate. Then this estate passes to its beneficiaries after the death of the settlor.

Who participates in the trust?

  • Settlor or grantor: he is the one who creates the trust agreement and puts their assets in the trust.
  • Trustee: is the person designated by the settlor to manage and distribute the assets properly among the beneficiaries and based on the will of the settlor.
  • Beneficiary: is a person or organization that will receive goods or assets as indicated in the trust.

So, a New York revocable living trust is a written instrument created during the life of the grantor, that is, the person who establishes the trust. Below we will highlight some points that characterize it:

  1. The trust is effective during the life of the grantor, with respect to the assets that are placed in said document.
  2. The trust is not effective until it is financed with assets.
  3. A revocable living trust is distinguished from a testamentary trust that is part of a last will and testament. In the case of the latter, it only comes into force after the death of the testator (the drafter of the will).

A fourth important feature to mention is that the grantor of a revocable living trust retains the power to freely modify and revoke the trust. It also retains the power to reacquire its assets. And it differs from an Irrevocable Trust, in that the Grantor cannot modify or revoke.

If you are considering starting the process to make a living trust, you must consider a relevant point. Please note that a life trust will be considered irrevocable unless you expressly provide that it is revocable. New York is one of the few states that allows the modification, amendment, or revocation of an otherwise irrevocable trust.

Features of a revocable living trust in New York

When people choose to have a revocable living trust, they generally opt for the plan of transferring as much of their assets as possible to the trust. But some assets do not qualify to be considered in this document, examples of them are:

  • Life insurance.
  • Retirement accounts.

Once the assets are in the trust, they are managed for your benefit while you are alive. The trust is administered by a trustee of your choosing. This can be anyone you trust. Then they appoints a successor trustee who will take over as trustee after their death. Once that has passed, the trustee continues to manage and protect your assets and then distributes them to your beneficiaries.

revocable trust

A living trust in New York allows you to completely avoid the succession of the assets that are in the trust. This is why most people choose to include as many assets as possible.

Succession is the judicial procedure in which a will is approved and put into effect. For this procedure, the court can take several months to approve the will, and the process also involves some expenses. You should know that none of the assets in the will can be distributed until the estate is concluded, which can leave your heirs in a difficult financial situation. Keep reading. Here are more differences and comparisons to a last will.

Advantages over using a last will

If you are comparing different estate planning tools, you should consider the following. Using a revocable living trust instead of a last will and testament allows the grantor the following benefits:

  • Helps avoid potential Last Will and Testament claims regarding Probate issues. Lack of proper execution attacks are very difficult. Although it should be considered that the level of competence required to execute a revocable trust is higher. For example, the same ability is required as to make a contract.
  • A revocable living trust in New York protects the grantor’s privacy. It is a private document, unlike a will, its provisions are kept private. A will goes through probate and becomes a public record. A trust is not disclosed to the public and its beneficiaries, assets and details of the trust remain completely private.
  • You avoid the cost and time of probate and its attendance expenses such as court filing fees, legal fees, guardian ad litem fees, and executor fees (but they will have the trustee’s fees).
  • The assets in the Revocable Living Trust will be available for immediate distribution after the death of the Grantor, subject to ensuring that there are sufficient assets available to pay estate taxes. A properly drafted living trust addresses this problem. By arranging what happens when a trustee resigns or dies, and provides a simple mechanism for the successor trustee to take over.
  • There are no gift tax consequences for transferring assets to the trust.
  • Continuation of the asset management of the Trust’s assets in the event of disability of the Grantor / Beneficiary.

Note: Check out our article on the differences between a trust and a will. Also, don’t miss our article on breach of fiduciary duty.

Disadvantages of using a living trust

There are some downsides to using a living trust:

  • You must transfer all of your assets, including title to any real property, to the Trust during your life; furthermore, any assets acquired during the existence of the Trust must be transferred to the Trust.
  • The cost of having an attorney prepare a Revocable Living Trust is generally higher than the cost of preparing a Last Will and Will.
  • Legal fees will be incurred to amend or modify the Trust during its lifetime and you will still need a last will (commonly known as a “discharge” will) in case there are assets that have not been transferred to the trust.
  • There are no substantial income tax advantages to using a living trust. Living trusts do not avoid inheritance taxes. New York State applies wealth tax to properties that are valued at more than $ 2.06 million. And the federal government applies it to properties that exceed $ 5 million.

Note: You may be interested in our article on New York Letters testamentary. Also check what happens when you take out life insurance without a beneficiary.

Who should consider setting up a living trust?

Anyone could take advantage of a revocable living trust. Contrary to what might be commonly believed, it is not an alternative only for the wealthiest. However, if you have an especially large or complex estate, it might make even more sense for you to take this option. Especially considering that in New York, the lack of the Uniform Succession Code can mean that even a relatively small estate can benefit from a living trust.

  • Anyone with property in more than one state should seriously consider transferring ownership of it to a living trust to avoid having to have more than one probate. For example, if you own a New York home with a Florida condo, you should consider transferring both residences to a living trust to avoid having your will probated in two states.
  • Another case that clearly requires considering the use of a living trust is when your family members are distant relatives. For example distant cousins ​​or nephews. Especially if you have lost contact with those family members. In such a case, not only will the executor of estate in New York named in your will (or the attorney you hire)  have to demonstrate “due diligence” in locating all family members, they must also show if one or more of them cannot be located.
  • Following the previous point, in the event that distant relatives cannot be found, the executor will have to obtain something called a “Publication Order”. This will involve spending hundreds or thousands of dollars on one of those legal advertisements that no one reads. All to notify these people of their possible interest in the estate, regardless of whether or not you named them in your will. Consider that all of that cost will be funded by the estate itself, thus decreasing the total pot to be distributed to your heirs.
advantages of a revocable trust
  • In addition, the substitute court must appoint an attorney as a “guardian ad litem” to protect the interests of these individuals and to investigate whether the will is valid. All of these costs will come at the expense of your heirs, and this lengthy process can substantially delay when someone can expect to receive your inheritance.
  • With an irrevocable trust, all of the property in the trust, plus any future increases in the property’s value, cannot be subject to estate taxes. This is not true for assets placed in revocable trusts in New York. Federal estate taxes and state estate taxes still apply. But with both trusts, you can avoid probate.
  • If you already anticipate that someone may have an interest in contesting your will, having a living trust can help you avoid litigation for your future heirs. It is not foolproof, but it avoids the immediate need to involve family members who may decide to cause trouble.

In short, except for the simplest inheritances (that is, all for the spouse, and if the spouse dies before having adult children and no one has an urgent need to access your property immediately), we recommend that you consider making a living trust.

Trust law in New York

New York law establishes mechanisms in your bylaws that allow the creator of a trust to modify or revoke an irrevocable trust. An additional thing is that under certain circumstances, a trustee can invade a trust and transfer trust assets to a newly drafted trust with different terms. Keep reading. Let’s review the details of the legislation. New York law states that:

  • If a settlor obtains the acknowledged written consent of all interested parties in an irrevocable trust, they may amend or revoke the writing. With these consents, a settlor can exercise this authority to enforce the title of the trust itself. He may also otherwise alter the provisions of the trust text as originally contemplated. “All interested beneficiaries” are the beneficiaries of the trust, that is, those who receive income and capital from the trust.
  • New York State also allows a trustee to modify the terms of an irrevocable trust using the back door approach. This means transferring trust assets to a newly drawn up trust. New York statute allows a trustee, who has absolute discretion to invade a trust for the benefit of an income beneficiary, to assign the assets of the trust to the trustee of another trust. And include it in a newly drawn up trust, so long as the following conditions are met:
  1.  The fixed income interest of any income recipient is not reduced.
  2.  The exercise is in favor of the beneficiaries of the trust.
  3.  Designating the trust assets to a new trust does not diminish the trustee’s liability for failure to exercise reasonable care, nor does it increase the trustee’s commissions.
  • Following the previous point, the advantage here is that a trustee can take action, if the above conditions have been met, without the consent of the creator of the trust or if the creator has passed away. The use of this power by the trustee can be very helpful when a client is faced with an old trust that is inadequate in its creditor protection provisions.

Given the flexibility in New York to revoke and amend irrevocable trusts, perhaps it would be a good idea for all clients to review their trusts to make sure they still carry out their intentions. Thus, in case the circumstances have changed or if the trust was written badly, they may consider modifying it.

Tasks That A Trustee Must Perform By Law In New York

When it comes to estate planning for your assets and properties, you need to know the importance of the trustee’s role. The role of the trustee in New York is as follows:

  • Manage the assets of the trust during the life of the settlor (person who creates the trust) and after the death of the settlor, as long as the trust exists. This is a huge responsibility that involves making long-term property management and investment decisions.
  • Manage a bank account for the trust.
  • Maintain records of the trust.
  • Pay the trust bills.
  • Distribute the trust assets in accordance with the terms established in the trust, at the time indicated for their distribution. This may include making payments on behalf of the beneficiaries, as well as directly to them if indicated in the trust.
  • The person you designate to assume the role of Trustee after your death is known as your “Successor Trustee”. When they die, their successor Trustee assumes the position of Trustee and manages and distributes the assets in accordance with the strict instructions that has been described in the Trust document.

Beware of False Promises: Seek Professional Advice

In the digital world, many estate planning professionals post announcements and writing related to revocable living trusts. The problem is that quite often, they have exaggerated the advantages over the estate in case of using a revocable living trust instead of a last will. Consider the following. All estate tax planning that can be implemented through the use of a revocable living trust can also be carried out through the use of a last will. For example, the use of Credit Protection Trusts can be implemented in a last will.

The Revocable Living Trust does not completely eliminate the need for a last will. As we mentioned earlier in this article, even if you have a living trust, it is recommended that you have a last will. It is highly unlikely that you transferred all of your assets to a living trust prior to your death, creating the need for a will to transfer assets that are only in your name at the time of your death.

New York Revocable Living Trust Lawyers

Now you know the details of what a revocable living trust is in New York. We know that for many people, planning the distribution of their assets is an issue that generates anxiety. All the legal details that are important to consider for a correct distribution of all your assets must be taken seriously. Especially deciding between the different options allowed by the laws of the United States. And to be able to decide which is the best option for you.

At Ortiz & Ortiz we have attorneys specializing in inheritances, trusts and successions that can help you in this process:

  • Advise you on the best trust figure appropriate to your needs.
  • Guide you in the drafting of the trust itself.
  • Advise and accompany you throughout the planning process for the distribution of your assets.
  • Guide your family through the entire process when you are no longer with them.

Our offices are located in Queens and Manhattan. But we can help you through a virtual consultation in any of the five boroughs of New York. Contact us, our attorneys are ready to review your case!