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Trusts

Tuesday, July 15, 2014

What is a Revocable Living Trust?

An Alternative to a Will
The revocable living trust is often considered to be a sound alternative to a traditional will. The advantage of a revocable living trust, as opposed to a traditional will, is that the lengthy probate process can be avoided. Additionally, the cost of administration can be substantially lowered while the distribution of your estate can be completed much sooner. Simply put, the distribution of your items will happen much quicker.

Understanding the Probate Process
The difference between a revocable living trust and a will is the manner in which your estate will be administered at the time of your death. A will normally must be entered for probate in the county of your residence at the time of your death. Probate is a court-supervised procedure that can take anywhere from nine months to a year to complete. Additionally, a notice to creditors must be published in the newspaper, a petition for probate must be filed with the court, and the court must authorize distribution of your estate following administration.

Why Use a Revocable Living Trust?
The primary purpose of a trust is to avoid probate. Typically, you would transfer your assets out of your name as an individual and into your name as trustee of your trust. During your lifetime, you would have the power to amend or revoke the trust and add or withdraw property from the trust. All income would be payable to you, during your lifetime, exactly as it is without a trust. Additionally, you could withdraw principal in such amounts as you deem necessary or appropriate. The trust would provide, however, that upon your death, the person you designate as the successor trustee would be required to follow your directions with respect to distribution.

Tax Implications
During your lifetime, there would be no income tax consequences to a trust. Income would continue to be reported using your Social Security Number. As long as you serve as the trustee, you would not have to obtain a separate tax identification number for the trust. The appointed successor trustee has the power to obtain a separate tax ID for the trust, without the necessity of probate or authority of a court.

Maroney Associates, PLLC understands that everyone has a different set of circumstances when it comes to estate planning. Our New York trusts and estate attorneys will use our experience, knowledge, and understanding of the state and federal laws to create a comprehensive end of life strategy that fits you and your loved ones’ needs. Contact Maroney Associates, PLLC for advice regarding your specific situation.


 


Wednesday, June 29, 2011

Five Reasons to have a Revocable Trust

In past blogs, we have discussed the reasons of including trusts as part of your estate planning program.  We also outlined the differences between revocable and irrevocable trusts.  Here is a quick summary of the advantages of establishing a revocable trust:

  1. Avoids probate.
  2. Maintains control of your assets until your death or incapacity.
  3. Establishes your beneficiaries to inherit your estate after death.
  4. Establishes who will act as the fiduciary to settle your estate after death.
  5. Establishes Credit Shelter and/or Special Needs Trust provisions to:
     
  • Mitigate or avoid estate taxes.
  •  Care for a special needs individual without jeopardizing his or her government benefits.
  •  Avoid a minor having access to an inheritance at 18 years of age.


Tuesday, May 17, 2011

Duties of a Trustee

We have discussed in prior blogs various types of trusts. We have also discussed the necessity and importance of selecting the right trustee.  The purpose of this blog is to give our readers assistance in making that proper selection by advising them of the duties of a trustee.

For starters, a trust is a legal arrangement where one person, known as creator, grantor, settlor, or trustor, establishes a legal entity known as a trust, and selects a person or entity known as a trustee, who will hold legal title to property for another person, who is called a beneficiary. A trustee, therefore, should be someone in whom the grantor has great confidence, and whose qualities include using good sound judgment.  A trustee’s duties include, but are not limited to the following:
 
Fiduciary Duty
A trustee has a fiduciary duty to the initial beneficiary who is entitled to the income or principal of the trust, as well as the remainder beneficiaries, which are the people who will receive the trust assets upon the death of the initial beneficiary.  A fiduciary is held to a very high standard with respect to the prudence that he or she must show toward the trust assets.
 
Comprehensive Duty
A trustee has a duty to truly know and understand the terms of the trust. The terms of the trust are contained in the words that make up the trust, and act as instructions to the trustee with respect to what she/he can do with the asset, its income, and its remainder.  It may sound simple, but if you are a trustee, you must read and fully understand the trust, and/or hire a professional to help you.
 
Investor Duty
A trustee must be a prudent investor. This means that the trustee cannot be needlessly risky or speculative with respect to the assets for which she or he is responsible as trustee. It is not his or her money to invest but, in fact, is for the beneficiary.  The trustee must be careful to make sure that she or he protects the assets for the current beneficiary as well as the future remainder beneficiaries. Seeking high income may be a natural desire, but the trustee must be careful not to indulge in choices so risky that the assets could be lost.
 
Distribution Duty
Certain trusts allow the trustee discretion with respect to whether or not she or he should make distributions to the beneficiaries of the trust.   This discretion requires the trustee to evaluate the needs of the beneficiary and future beneficiaries, against the assets of the trust.

This may often require the trustee to tell the beneficiary that she or he cannot have any more money, which moves the trustee's role into the personal realm in addition to the legal.  This can be especially tricky when the beneficiary is a relative.
 
This duty should be taken very seriously when considering and/or selecting your trustee, as a professional trustee (such as a bank, trust company, attorney, a financial adviser, accountant, etc.), may have an easier time saying no to a loved one.
 
Monitoring the Trust Duty
The trustee must be organized and have some bookkeeping skills.  She or he need not become an expert in accounting, but must have some understanding of accounting/bookkeeping, so as to track income, distributions, and expenditures.
 
Certain trusts must file a tax return, and as with the above paragraph, the trustee need not become an accountant or professional tax preparer, but if a tax return is required to be filed, it is the trustee’s duty to insure that it gets done.  This may involve delegating the job to a professional, which is discussed immediately below.
 
Delegating Duties
The trustee will be responsible for delegating duties that she or he is not equipped to handle.  A good trustee does not have to be an accountant, skilled and able to prepare a tax return, or an attorney able to handle interpretation of the trust.  A good trustee must, however, be skilled at selecting the proper professionals to help him or her complete their role as trustee.
 
Trustee Fee
Both the creator of the trust and the selected trustee should know that a trustee is entitled to a reasonable fee for his or her services. This may be especially important for family members named as trustees as they often do not wish to accept the fees.  The job of a trustee may require a serious time commitment, so in order to insure the job is done well and without a “grudge,” it may be prudent to establish in writing that you, as the creator, direct the trustee to take his or her reasonable fee.
 
If a trusted professional such as a bank, trust company, or law firm, etc. is selected as trustee,  they are entitled to and will take a reasonable fee, whether it be an hourly fee, a percentage of the fees under which they are charged to oversee as a trustee, or something else.
 
Having the appropriate information on the duties of a trustee should help you better understand how to select a trustee and/or how to serve as a trustee.  As always, should you have further questions regarding the selection of Trustees, or any other legal matter, Maroney Associates invites you to call our offices.


Tuesday, January 4, 2011

Protecting Your Estate: Testamentary and Living Trusts

In our last blog, we stated that:
 
“Through the use of trusts, both living and testamentary, an individual can plan to mitigate their estate tax liability.”
 
Today’s blog will address the differences between Testamentary and Living Trusts.
 
Testamentary Trusts
 
A testamentary trust is a trust that is established in a person’s last will and testament, hence the term “testamentary.”  The trust language is set forth in the last will and testament and the trust is not “funded” until the testator passes away.  At that time if the contingency set forth in the last will and testament, such as the minor child is still a minor at the time the testator passes away, then the trust will be funded accordingly.  Funding a trust means placing the asset, whether it is a hard asset or liquid asset, into the name or term of a trust.
 
Living Trusts
 
A living trust is a trust that is set up during a person’s lifetime, hence the term “living.”  Living trusts come in two forms, revocable and irrevocable.  Both forms enjoy the benefit of having the assets held in the trust pass outside of probate.  This is a very useful tool when the beneficiaries of the estate are likely to be in dispute as a trust is more difficult to challenge than a probate of a last will and testament.  Also, the fact that the assets will pass outside of probate is a benefit when some of the assets are located out of state.  For example, a New York resident who owns a condominium in Florida will allow his family a much easier transfer of that condominium if it is owned by a trust instead of by the individual.  If owned by the individual, the family would have to probate in Florida.
 
The difference between a revocable trust and an irrevocable trust is a matter of control.
 
  • A revocable trust will allow the person establishing the trust to control the assets until such time as he or she becomes incapacitated or passes away.  While this allows control, it does not protect the asset relative to estate taxes or the devastating cost of long-term care.  That is, if the person controls the asset until he or she takes his or her last breath or needs long-term care, then the asset is not out of his or her name.
  • An irrevocable trust is very useful for protecting assets against estate taxes and/or the cost of long-term care.  However, the challenge to an irrevocable trust, at least for some people, is that the person establishing the trust and funding the trust must give up control of the asset(s) placed in the trust.
 
There are other rules relative to irrevocable trusts and how they might best benefit the person establishing them.  For example, if the purpose of a trust is to protect an asset or assets from the cost of long-term care, which is also known as an asset protection trust or a Medicaid trust, the asset may not be touched by the person establishing the trust and any income generated by the asset must be paid to the person establishing the trust.
 
Likewise, another useful tool is an irrevocable life insurance trust, which will allow the beneficiary to avoid not only income tax, but also estate tax.  Certain rules must be followed, however.  For example, the person establishing the trust cannot directly pay the insurance premiums.  Instead she or he should make a donation to the trustee, who will offer that amount of money to the beneficiary of the trust.  The beneficiary will waive their right to the money, at which point, the trustee will pay the life insurance premium.
 
Which is the better choice?
 
The question arises as to which is the “better” type of trust.  The answer depends upon the wishes and needs of the person establishing the plan.
 
  • If estate taxes are not an issue, and the person establishing the trust wishes to retain control over the assets, and does not have an issue relative to the devastating cost of long-term care (likely due to the fact that she or he has a long-term care insurance policy), then a revocable trust will work just fine.
  • On the other hand, if a person has significant wealth such that there will likely be a substantial estate tax impact on death, and/or is unable or unwilling to secure long-term care insurance, then an irrevocable trust would be the way to go.  This would remove the assets from the estate for the purposes of being counted toward long-term care and/or estate taxes.
 
This explains some of the similarities and differences between testamentary trusts and living trusts, both irrevocable and revocable in nature.
 
If you have any questions about these types of trusts, or any other matter, please feel free to contact us for a consultation.
 
Matthew J. Maroney, Esq
Cristina Prieto-Maroney, Esq
 
Maroney Associates, PLLC
 
Phone: 631-881-0877
Fax: 631-881-0874

Sunday, December 5, 2010

The Federal Estate Tax as of January 1, 2011


As of January 1, 2011 the Federal Estate Tax is scheduled to tax any estate in excess of one million dollars at 55% of that excess. 

Through the use of trusts, both living and testamentary, an individual can plan to mitigate their estate tax liability.  For example, an individual worth $2 million can use estate planning techniques to transfer the entire $2 million without paying a Federal Estate Tax.  Without using such techniques, $1 million of the estate would be subject to a 55% Federal Tax, in addition to any applicable state estate tax.
 
If you would like further explanation or have any questions/concerns regarding the Federal Estate Tax, please feel free to contact us.

Matthew J. Maroney, Esq
Cristina Prieto-Maroney, Esq
 
Maroney Associates, PLLC
 
Web: www.maroneylaw.net/
Phone: 631-881-0877
Fax: 631-881-0874
 




Based in Melville and Garden City, New York, the attorneys at the Law Offices of Maroney Associates, PLLC assist clients throughout Nassau County, Suffolk County, Queens, and the cities of Mineola, Hempstead, New Hyde Park, Franklin Square, Williston Park, Queens Village, Melville, Huntington, Farmingdale, Patchogue and Uniondale, NY.



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| Phone: 866-994-2025
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