What is a Trust?
A trust is a fiduciary arrangement that allows a third party (the trustee) to hold and manage assets on behalf of beneficiaries. The person creating the trust is called the grantor or settlor. Trusts can take effect during your lifetime (living trusts) or upon your death (testamentary trusts). Unlike a will, trusts can provide ongoing management of assets and can be designed to avoid the public probate process.
Revocable Living Trusts
A revocable living trust (also called a living trust or inter vivos trust) is the most common trust for estate planning. You create the trust during your lifetime, transfer assets into it, and typically serve as your own trustee. You retain full control and can modify or revoke the trust at any time. Upon your death, assets in the trust pass directly to beneficiaries without going through Surrogate's Court probate. This provides privacy and can significantly speed up asset distribution.
Irrevocable Trusts
Irrevocable trusts cannot be easily modified or revoked once created. While this may seem limiting, irrevocable trusts offer significant benefits: assets are generally protected from creditors, may be excluded from your taxable estate, and can help you qualify for Medicaid. Common types include Irrevocable Life Insurance Trusts (ILITs), Charitable Remainder Trusts, and Medicaid Asset Protection Trusts (MAPTs).
Medicaid Asset Protection Trusts (MAPTs)
A MAPT is a specific type of irrevocable trust designed to protect assets while preserving Medicaid eligibility for long-term care. Assets transferred to a MAPT are not counted for Medicaid purposes after the 60-month look-back period. You can name your children as beneficiaries while the trustee manages the assets. Many New York families use MAPTs to protect their home and savings from nursing home costs while still qualifying for Medicaid.
Special Needs Trusts
A supplemental needs trust (also called a special needs trust) allows you to provide for a disabled beneficiary without disqualifying them from government benefits like Medicaid and SSI. The trust can pay for goods and services that enhance quality of life beyond what government programs cover. New York recognizes both first-party trusts (funded with the beneficiary's own assets) and third-party trusts (funded by family members).
Funding Your Trust
Creating a trust document is only the first step. You must transfer assets into the trust (called funding) for it to be effective. This includes changing titles on real estate, retitling bank and investment accounts, and assigning ownership of valuable personal property. Many people create trusts but fail to properly fund them, which defeats the purpose of avoiding probate. Work with your attorney to ensure all appropriate assets are transferred.
Step-by-Step Guide
- 1
Determine Your Goals
Identify what you want to accomplish: avoiding probate, protecting assets, providing for special needs beneficiaries, or reducing estate taxes.
- 2
Choose the Right Trust Type
Work with an attorney to select between revocable and irrevocable trusts based on your specific goals and circumstances.
- 3
Select Your Trustee
Choose someone reliable to manage the trust. You can often serve as your own trustee for a revocable trust, with a successor named.
- 4
Draft the Trust Document
Have an experienced New York estate planning attorney prepare the trust agreement with proper provisions.
- 5
Execute the Trust
Sign the trust document according to New York requirements. Notarization is recommended.
- 6
Fund the Trust
Transfer assets into the trust by changing titles and beneficiary designations. This is crucial for the trust to work.
- 7
Maintain the Trust
Keep records, file any required tax returns, and review the trust periodically to ensure it still meets your needs.
Frequently Asked Questions
A will and a trust serve different purposes and often work together. A will goes through probate and only takes effect at death. A trust can avoid probate, provide for incapacity planning, and offer ongoing asset management. Many New York residents benefit from having both a trust for major assets and a pour-over will to catch anything not transferred to the trust.
Yes. Most people who create revocable living trusts serve as their own trustee during their lifetime, maintaining full control over the assets. You name a successor trustee to take over if you become incapacitated or pass away.
A standard revocable trust does not reduce estate taxes because you retain control of the assets. However, certain irrevocable trusts can remove assets from your taxable estate. Credit shelter trusts (also called bypass trusts) are commonly used by married couples to maximize use of both spouses' New York estate tax exemptions.
For nursing home Medicaid, New York applies a 60-month (5-year) look-back period for asset transfers. Assets transferred to a Medicaid Asset Protection Trust will not count against you for eligibility purposes once the full 60 months have passed. Home care Medicaid currently has no look-back period.