WHAT YOU NEED TO KNOW ABOUT TRUSTS

A More In-depth Look at Trusts What They Are, What They Do, and Why Trusts Are an Important Part of a Comprehensive Estate Plan

For people who dont have much experience with estate planning, learning about trusts can be very important as you go about creating your plan. Even though lawyers and estate planning professionals talk about trusts a lot, they often forget that most people have very little understanding of what these key estate planning tools are and how they work. To demystify trusts, lets take a look at them in a little more depth.

THE DEFINITION OF A TRUST

One of the easiest ways to think about a trust is to think of it as a company. Even though the company doesnt produce any products and isnt housed in a physical building or headquarters, it exists in a legal sense. Because the law recognizes the companys existence, that company can own property. This is essentially how a trust operates. Even though the trust has no physical presence, it is a separate legal entity that you can create. After creating it, you can then use that trust to own property for a specific purpose.

Trusts in the State of New York

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TRUST TERMINOLOGY
Now that you know that a trust is a legal organization, we can build on that knowledge by fleshing out how that entity works. Here are some basic trust terms you should know. Trustor. Also sometimes called a settler or a grantor, this is anyone who establishes a trust. To establish a trust, you have to be at least 18 years old and be of sound mind. Trustee. Like the chief executive of a corporation, the trustee is there to manage the trust and the property it owns. The trustor appoints a trustee, but its the trustees job to perform the day-to-day tasks of managing the trust. Beneficiary. The beneficiaries are similar to the shareholders of a corporation. In a corporation, shareholders receive dividends as the company makes a profit. Similarly, the beneficiaries of the trust get to use or benefit from the property the trust owns. Terms. Your trust operates under a set of rules, much like a corporation operates under a set of bylaws. The trustor gets to determine what rules apply to the trust, and will set those rules out in a document called the trust agreement or the trust instrument. This document will also state the reason the trustor created the trust, and the objectives it was established to pursue.

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TYPES OF TRUSTS
All trusts essentially operate the same way, but there are many different types of trusts available to you. Some trusts offer specific benefits that other trusts do not, and determining the right kind of trust that fits your needs is something youll have to do after speaking to your attorney. However, there are many different types of trusts that people commonly create, some of which we will list here. Testamentary trust. When you write a last will and testament, you might include directions for the creation of a testamentary trust. People who have young children, or those who want to leave an inheritance to children or grandchildren who have not yet reached adulthood, often use a testamentary trust. Through these trusts you can appoint a trustee who will manage an inheritance until the recipient becomes old enough to manage it on his or her own. You can also establish a testamentary trust that includes terms that limit when the beneficiary will receive the inheritance. Such terms commonly require, for example, that the beneficiary must reach a certain age or must graduate from college before he or she receives the inheritance.

Trusts in the State of New York

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 Revocable living trust. One very popular trust is the living trust, sometimes known as the revocable living trust or inter vivos trust. When you create a revocable living trust, you do so primarily to transfer property to inheritors after you die without the necessity of first having to go through probate. If you own property under your name, that property must usually go in front of a probate court before a new owner can take possession after your death. However, a living trust trust allows you to skip this process by creating a separate entity that can continue to exist even after your death. Irrevocable life insurance trust. If you have a life insurance policy, the death benefits your beneficiaries receive will be lumped together when it comes time to determining the size of your estate. Depending on the size of your estate, this could mean that the federal or state government will take a portion of your property after you die as an estate tax. By using an irrevocable life insurance trust, on the other hand, you can effectively remove the death benefit from the final estate tax calculation. This decreases the size of your estate and makes it less likely that your estate will have to pay money in estate taxes. Other trusts. Of course, the three trusts listed above are only the beginning of the types of trusts available to you when creating an estate plan. Other popular trusts include special needs trusts, which allow a parent of a child with disabilities to pass an inheritance to that child while preserving the childs ability to receive government assistance. There are also trusts that allow you, for example, to create a charitable foundation to support causes of your choice.

Trusts in the State of New York

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ONE TRUST, MULTIPLE TRUSTS, OR NO TRUSTS

The many benefits trusts provide make them desirable estate planning tools even if you are only creating a very simple estate plan. Deciding what type of trust is right for you, how many trusts you need to create, or whether you can create an estate plan that doesnt use a trust at all, is not something most people can determine by themselves. Estate planning attorneys who have experience evaluating individual situations to determine what types of trusts fit those circumstances are the most capable of providing you guidance as you determine what trust is right for you. You should contact your estate planning attorney as soon as possible, because delaying the creation of an estate plan, or the creation of various types of trusts, can cost you and your family in the long run.

Trusts in the State of New York

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About the Author

Anthony J. Minko As an attorney in private practice in Brooklyn, New York, Anthony J. Minko provides a wide range of estate planning services to clients throughout the New York City area. Mr. Minko creates customized estate plans that enable families to preserve their wealth and provide for the security of their loved ones both during and after their lifetime. He dedicates himself to informing the public of the need for careful attention to their specific situations, regularly presenting educational seminars addressing the growing importance of estate planning. Before forming Minko Law Office, Mr. Minko spent over four years as a trial attorney handling civil and commercial litigation in New York state and federal courts. He also served the senior community as a member of Wells Fargo Bank and the New York City Law Department. Mr. Minko is a member of the American Academy of Estate Planning Attorneys, The National Academy of Elder Attorneys, and several local and state bar associations. Minko Law Office 6922 12th Avenue Brooklyn, NY 11228 Phone: (718) 238-1727 Fax: (718) 971-1059 www.MinkoLaw.com

Trusts in the State of New York

Minko Law Office