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You’ve worked hard to build your nest egg and create the life you’ve envisioned for you and your loved ones. As a result, it’s important you take the proper steps and use the right legal tools to ensure the fruits of your labor are protected and transferred to your heirs and loved ones how you desire.
The elder law and estate planning attorneys at Cona Elder Law offer decades of experience helping people like you create a plan. One of the most important tools at your disposal are trusts.
A trust is a legal agreement where one person, known as the trustee, holds legal title to specific property for the benefit of another person, known as the beneficiary. As the creator of the trust, you will name the beneficiaries of the trust as well as the person you wish to administer the trust, known as the trustee. The trustee must function within rules specified in the trust agreement itself.
There are many kinds of trusts, each with different purposes, which can be divided among living trusts and testamentary trusts. There are also trusts created for asset protection purposes, trusts for estate tax purposes, and trusts created to avoid probate. Within these categories, some trusts must be irrevocable while others can be revocable.
A testamentary trust is a trust which is created and set forth in a Last Will and Testament. The trust does not get funded until the testator passes away. At that time, the testamentary trust is funded and administered for the beneficiaries named therein.
Also known as living trusts, these trusts are created and exist during the lifetime of the creator. Assets are transferred into the trust and the trust is immediately administered by the trustee for the benefit of the beneficiaries. A living trust may be revocable or irrevocable depending on its purpose (asset protection planning, tax planning, probate avoidance, etc.).
Testamentary Trusts are trusts created by a Will and have no effect until the creator dies and the Will is admitted to probate. A testamentary trust can help reduce estate taxes and provide for minor children or children with special needs. Below are a few examples of common testamentary trusts.
A credit shelter trust is a testamentary trust designed explicitly for tax savings purposes. The trust allows the total assets of a married couple to be doubled for the purpose of passing assets to the next generation tax-free.
Upon the death of the first spouse, the amount that would be taxable (based on the tax laws at the time of death) is placed into the trust. The surviving spouse can receive income from the trust for the duration of his or her lifetime and, upon death, the principal will pass on to the children (or other beneficiaries) tax-free.
If you have minor children or grandchildren to whom you would like to leave an inheritance, a trust until a certain age you specify may be the best solution.
You can create a trust in your Will that serves to protect and provide for minor children or grandchildren by controlling how and when distributions should be made. You may direct that assets be distributed in specific amounts and/or specific intervals or ages of the beneficiaries.
A Supplemental Needs Trust or Special Needs Trust (SNT) can be testamentary or inter vivos and is designed to provide for the continuing care of a person with special needs without disruption of public benefits, such as SSI and Medicaid. Trust assets may be used to provide for items or services not covered by governmental benefits, such as:
Inter Vivos (living) trusts are trusts created during lifetime and are designed to be effective during the creator's lifetime. A living trust may be created for asset protection purposes, for probate avoidance, for a special needs beneficiary who has come into money, and more. A living trust may be irrevocable or revocable depending on its goal and stated purpose
A GRAT enables you to transfer assets out of your estate and have them valued at a fraction of their current value for estate-tax purposes. Such a transfer allows you to retain a stream of income from the assets for a fixed number of years.
A GRAT is an irrevocable trust into which you can place income-producing property such as cash, stocks, mutual funds or real estate. The trust creator (grantor) can receive the income produced by the trust assets for a fixed period of years in the form of an annuity.
The fixed term of the trust is specified when the trust is initially set up and can be any amount of time. At the end of the time period, the trust assets pass directly to the named beneficiaries.
The main objective in creating a Grantor Retained Annuity Trust is estate and gift tax savings. If the grantor outlives the term of the trust (and the trust should ideally be designed with this in mind), the beneficiaries get the assets with potentially significantly reduced gift tax consequences and no estate tax consequences.
The trust attorneys at Cona Elder Law will help you think through all considerations and potential nuances to make the best decisions.
Do you have a special charity or nonprofit organization that is near and dear to your heart? You can help ensure the future of the nonprofit through a Charitable Remainder Trust (CRT).
A Charitable Remainder Trust is a life income gift in which you transfer assets now, receiving a charitable deduction for a portion of the transfer. Then, you or a beneficiary receive income (tax-free) for the rest of your life or a fixed period of time.
Like a Grantor Retained Annuity Trust (GRAT), a Charitable Remainder Trust is an irrevocable trust funded with income-producing assets. The trust then provides income payments to you or a named beneficiary for a fixed period of time or until the death of the beneficiary. At that time, the remaining assets are transferred from the trust to a qualified charity of your choosing.
Once again, the main advantage of the CRT is to reduce the amount of your taxable estate, thereby reducing estate taxes upon your death.
A Qualified Personal Residence Trust (QPRT) is an irrevocable trust funded with your ownership interest in a personal residence, effectively excluding the full value of the residence from your estate. Neither the residence nor its value will be subject to estate tax.
As the donor, you transfer title to the residence (primary or a vacation home) to the trust, retaining the right to continue to use the residence for a term of years. Your right to use the residence terminates when the QPRT term terminates (although you and the beneficiaries may agree that you will continue to use the residence and pay fair market rent) and the residence will not be included in your estate for estate tax purposes.
The beneficiary of a life insurance policy generally will not pay income tax on receipt of the policy proceeds. The value of the proceeds will be included in your estate for the purpose of calculating estate taxes if you owned the policy at the time of death. This can be a very expensive consequence.
An Irrevocable Life Insurance Trust (ILIT) could save tens or hundreds of thousands of dollars in estate taxes because the trust owns the life insurance policy for you. Since you do not personally own the insurance, it will not be included in your estate.
You create the trust, select the trustee and designate the beneficiaries. Thus, you control the trust by creating a set of instructions the trustee must follow. The assets in this trust will bypass your estate and your spouse's estate and go directly to your children (or whomever you name as the beneficiaries).
This avoids estate taxes in both estates, saving a high percentage of your insurance proceeds. Proceeds in the trust can be used to:
When it comes to creating the best type of trust to protect your legacy and loved ones, the experienced team of trust attorneys at Cona Elder Law will tailor your estate plan to your unique needs. We pride ourselves on delivering first-rate service with a special level of attention to your needs, concerns, and goals. It’s no wonder Cona Elder Law has been ranked the #1 Elder Law and Trusts and Estates firm in New York.
Contact us at 631.619.2533 to preserve your assets and protect your family.
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