All trusts are not created equal. There are different trusts that are utilized to accomplish varying different objectives. Many people are under the assumption that trusts are only useful for the wealthy, but this is not the case.
High net worth individuals often have estate tax concerns. There is a federal estate tax that carries a $5.34 million exclusion. If your assets exceed this amount, you must take steps to gain estate tax efficiency.
It should also be noted that we have a state-level estate tax in New York. The New York state exclusion is currently $2,062,500.
To gain estate tax efficiency you could potentially convey assets into certain types of irrevocable trusts. Because this type of trust cannot be revoked or rescinded, you are surrendering incidents of ownership. As a result, generally speaking, resources that have been conveyed into this type of trust would no longer be part of your taxable estate.
There could be gift tax concerns, but that is a subject for another post.
Certain types of irrevocable trusts could also be used for Medicaid planning purposes. Medicaid is a need-based program that is used by many seniors who need long-term care, because Medicare will not pay for living assistance. The use of this type of trust could reduce your countable assets and help you qualify for Medicaid coverage.
Revocable Living Trusts
Revocable living trusts are not going to satisfy the objectives of many wealthy families. As the name plainly states, you can revoke the trust. If you want to, you can dissolve the vehicle and walk away with the money in hand at any time.
When you create a revocable living trust you are called the grantor. The grantor of the trust can act as the trustee and the beneficiary at first. You could continue to control the actions of the trust, and you could take monetary distributions as you see fit.
Because you enjoy this ongoing control, assets conveyed into a revocable living trust would be looked upon as part of your taxable estate. They would also be counted by Medicaid evaluators. The assets would not be protected from creditors or claimants.
Though these trusts are not useful for any of the above purposes, they are quite useful for those who would like to facilitate asset transfers outside of probate.
Probate is a legal process that takes place under the supervision of the Surrogate’s Court in the state of New York. The executor of the estate must admit the will to probate before the heirs receive their inheritances. This is a time-consuming process that can also be quite costly.
When you use a revocable living trust to arrange for the transfer of your assets, the process of probate is not a factor. This is why revocable living trusts are popular among people of relatively ordinary means.
Learn More About Revocable Living Trusts
If you would like to learn more about revocable living trusts, download our in-depth report on the subject. The report is being offered on a complimentary basis, and you can access your copy through this link: Living Trust Report.
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- 2024 Medicaid Guidelines for New York Seniors - February 7, 2024
- Young Adults and the Importance of Estate Planning - January 31, 2024