What is the difference between a living trust and other types of trusts?
This is a term that is not tricky in any way. Simply put, a living trust is a trust that goes into effect while you are still alive.
Do you surrender control of the assets to a trustee?
No, this is a commonly held misconception about trusts. If you establish a living trust, you can act as the trustee while you are alive and well. As a result, you maintain complete control of the assets that you convey into the trust.
Can you dissolve the trust if you change your mind?
Yes, this is another layer of control that you retain. This would be a revocable living trust, so you would be able to revoke or rescind the trust at any time.
Are assets in the trust protected from legal actions?
Since you maintain the right of revocation and you will be acting as the trustee, you are retaining incidents of ownership in a legal sense. You have direct access to the resources, so a litigant seeking redress would also have access. In addition to lawsuits and tax liens, this applies to some other matters. If you are exposed to the federal or New York estate tax, the assets in the revocable living trust would count. Many people seek Medicaid eligibility late in their lives because Medicaid will pay for long-term care. Medicare does not pay for the custodial care that nursing homes and in-home caregivers provide. You cannot qualify for Medicaid if you have significant assets in your name. Once again, assets in a living trust would count, so this type of trust would not be useful for Medicaid planning purposes. There are irrevocable trusts that are used to provide estate tax efficiency, and you can use an irrevocable trust to get assets out of your name to qualify for Medicaid.
What makes a living trust better than a simple will?
There are a number of different advantages, and for many, probate avoidance is at the top of the list. If you use a will to state your final wishes, you would name an executor to act as the administrator, and they would admit the will to probate. This is a legal process that takes place under the supervision of the Surrogate’s Court. It serves a purpose, because creditors are given a chance to seek payment before the assets are distributed, and the validity of the will is determined by the court. However, there are drawbacks that negatively impact the rightful inheritors. Probate will take about nine months at minimum to run its course, and no inheritances are distributed while the estate is being probated. Probate expenses shave down the value of the estate before it is distributed to the heirs, and it is a public proceeding. Anyone that is interested can access the records to dig into the details. Another benefit is the ability to protect a spendthrift. You can include a spendthrift clause, and the trust will become irrevocable after your death. At that point, the principal would be protected from the beneficiary’s creditors. If you want to be sure that the beneficiary does not burn through their inheritance too quickly, you can instruct the trustee to provide limited incremental distributions. For example, you can set a particular dollar amount that the beneficiary will receive each month. Many people will install the guardrails at first and ultimately allow the trustee to provide larger distributions when the beneficiary reaches certain age thresholds.