One of the principal ways to avoid probate upon your death and provide for the management of your assets should you become disabled is to place your assets into a Revocable Family Trust.
The purpose of this short letter is to give you a brief explanation of what a Revocable Family Trust is and how it can be used to accomplish many of your estate planning goals.
Hope this helps.
A. An Inter vivos (during life)Family Trust is a trust created during your lifetime. The "grantor" (also called the "settlor," "trustor" or "donor") is the person who sets up the trust (you).
B. A Revocable Family Trust is an inter vivos trust in which the grantor retains the power to amend (change or modify) or revoke the trust. A revocable trust is usually set up for the benefit of the grantor, the grantor's spouse, children and grandchildren. It is set up when the grantor and the trustee sign the trust agreement (which is sometimes referred to as a "deed of trust," "trust indenture" or "trust instrument") and the grantor funds the trust, with some or all of the grantor's assets. The trust is not valid until assets are transferred to the trust which is called "funding" the trust. (Note that under some state statutes certain trusts, such as those receiving life insurance proceeds at the grantor's death, are valid even if unfunded.)
C. An Irrevocable Trust is an inter vivos trust that cannot be amended or terminated by the grantor. It is usually established by the grantor for the benefit of the grantor's family members or for the benefit of certain charities. It should be noted that while the grantor cannot revoke the trust, New York law (EPTL Sec. 7-1.9) allows an irrevocable trust to be amended if the grantor and the beneficiaries of the trust agree to the amendment. Please refer to our companion article for an explanation of the use of an Irrevocable Family Trust in estate planning.
ii. Children who are minors, inexperienced in financial affairs or not responsible enough to handle large sums of money.
iii. Professionals, corporate executives and business people who lack the time for asset management.
iv. Persons who travel extensively, either for pleasure or employment reasons.
b. A child, friend or family member may serve as a trustee or co-trustee with the grantor, thus providing financial management of the grantor's assets in the event of the grantor's physical (heart attack or stroke for example) or mental disability.(Alzheimer's, dementia, senility).
c. The Grantor may decide that it is necessary for a professional, experienced trustee to become involved to serve as sole trustee or as a co-trustee with a child, friend or family member, which would provide the grantor:
ii. safekeeping and custody of assets
iii. record keeping and
iv. tax advice.
d. "Unfunded" revocable trust. A person who is presently able to manage his or her assets may create an unfunded revocable trust, which is one that has some small asset, such as $10, at the time of creation. If the grantor later becomes disabled, incompetent or dies, assets are transferred to the trustee for management. When the grantor doesn't fund the trust when it's created, the assets must be transferred at a later date to the trustee by either a durable power of attorney, a springing power of attorney or by a pour over will. It should be noted that I do not advise the use of unfunded revocable trusts in my practice because of the possibility that the grantor will die before funding the trust, thus leaving a large amount of assets that must pass through probate, which defeats one of the principal goals for establishing the revocable trust, avoiding the delay, legal fees, costs and expenses of probate.
Durable Power of Attorney. Under N.Y. General Obligation Law Section 5-1601, a person can legally state that his or her subsequent disability or incompetency shall not automatically revoke or terminate the authority of an attorney-in-fact, who is a person that he gave the power to legally act on his or her behalf.
e. Funded Revocable Trust Unlike the unfunded revocable trust, with a funded revocable trust, the trust is funded with most, if not all of the grantor's assets and the grantor usually names himself or herself as a co-trustee with their spouse, child or friend so the grantor can still keep full control of their assets during their lifetime. Upon the grantor's disability or death, the spouse, child or friend can manage the assets according to the grantor's wishes and directions without the interference of any court, the associated legal fees and without the necessity of a legal guardianship or probate. It should be noted that in some states like New York, the grantor can be the sole trustee, but in other states there must be a co-trustee. I always advise my clients to have a co-trustee to avoid any delays in distributing assets from the trust if the grantor is disabled or passes away.
B. Another principal benefit of a revocable trust is that it provides uninterrupted management of the grantor's assets once he or she dies and avoids probate which can be expensive, time consuming and frustrating because probate may result in years of delay to settle the estate. Probate is often expensive for the surviving spouse and children, often resulting in less money distributed to beneficiaries because of large attorney's fees and expenses inherent in probate. Assets in the trust avoid probate because they do not pass under the will, and are administered by the trustee. This can save probate-related costs such as a large legal fees and guardian fees for minor children.
C. Using a funded revocable trust also reduces the risk of a will contest involving the grantor's incompetency or undue influence upon grantor because the unhappy heir must initiate court action (rather than merely filing objections to the will as in the will contest procedure).
D. A revocable trust assures the grantor privacy because unlike a will, it is not a public document and doesn't have to be filed in the Surrogates Court, unless the will pours into it. If the will pours into the revocable trust, the trust will be part of the public record in New York.
E. A revocable trust is extremely useful in avoiding expensive ancillary probate (a second probate in another state besides the state where the grantor lived) which will be necessary if the grantor owned assets in their individual name like a vacation home located outside the state where the grantor lived.
F. With a revocable trust, assets are available for immediate distribution after death.
G. A revocable trust permits the grantor to determine what laws will govern the administration of the trust and thus what state will govern administration of the assets.
Our office offers a free office conference to further explain how a Revocable Family Trust can be used to help you achieve your estate planning goals.
Warmest personal regards
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