‘Trust’ is a broad term for a legal arrangement that covers numerous options and goals. The office of Mikel J. Hoffman, P.C. in Babylon, NY can aid you in the creation and implementation of trusts for you and your loved ones. The creation of a family trust is part of an estate plan to avoid probate and create an assurance that a financial plan is implemented both during and after your lifetime. Trusts are useful in the event of your incapacity with the trust continuing your financial plan with little interruption. See below for a few of the most frequently used forms of trusts:
A revocable or living trust is a common plan to avoid probate and an assurance that your financial plan is in effect during both your lifetime and after your death. The revocable trust gives you great flexibility of control including appointing yourself the trustee and reserving to yourself the power to terminate the trust. A revocable trust avoids probate and allows for an easier transition for your loved ones after your death. Retirement or saving plans often require a designation of a beneficiary and a revocable trust listed as the beneficiary is useful to assure that the your financial plans of all your loved ones are considered. Even though a revocable trust has many advantages, it does not mean it’s the best choice for everyone. It is worth noting that a revocable trust does not protect your assets from creditors, it offers no advantage for tax planning nor does it qualify you for any government financial assistance such as Medicaid.
An irrevocable trust is often used for estate tax planning or helping you to qualify for government financial assistance such as Medicaid. Property that you place in an irrevocable trust is no longer considered part of your estate, meaning that the property typically isn’t included in your estate’s value when it comes to determining if your estate owes estate taxes. Because these assets are no longer considered yours, you have little to no control of the trust and you will not have access to those assets except in some cases when income is generated from the trust assets. Another concern is if there is profit from any sale of the trust assets may result in capital gains, tax that would not occur if the same asset passes through probate or if it were included in a revocable trust. Unlike a revocable trust, assets in an irrevocable trust are protected from creditors and aid in estate tax planning because these assets are technically no longer in possession of the grantor.
The testamentary trust is created within a person’s Will and is funded only after death. A testamentary trust is often used to withhold money from a beneficiary who would normally inherit at the age of 18. The testamentary trust is a financial plan that the money is not provided to the beneficiary until a certain age or event.
The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding creditors or any federal or state tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation and estate planning.