Pen signing paper

In General

A trust is a device created by an individual, called a grantor, that allows the grantor to transfer assets from himself to another individual, called the trustee, to be maintained by the trustee for the benefit of another, the beneficiary.  Why have a trust? Most grantors create trusts for the following reasons: tax and estate planning, Medicaid planning, and charitable planning.

Revocable and Irrevocable Trusts

There are two major types of trusts: revocable and irrevocable. Revocable trusts, also commonly referred to as living trusts, are frequently created as a substitute for a Last Will and Testament. They are useful when an individual with assets has been diagnosed with a memory-impairing illness. While the grantor is still competent, she may create such a trust and fund it with her assets. Thereafter, she can direct how those assets are to be managed if and when she becomes incapacitated, and how they must be distributed after she dies.

This type of trust allows an individual to manage her assets before and after her incapacity and replaces the need for probate of a Last Will and Testament, if structured properly. In addition, it can be revoked or modified or terminated entirely, at the whim of the grantor. Accordingly, it is of no use to those interested in tax or Medicaid planning, by virtue of the fact that it is, by definition, revocable. They are not inexpensive, and a well-drafted power of attorney with a will may serve the exact same purpose with a fraction of the up-front expense. Interestingly, living trusts have caught on in California and are a much more frequently utilized estate planning tool, there, than they are here in New York.

The irrevocable type of trust is a much more favored-friend of the tax and Medicaid planning attorney. The rationale being that once the assets are transferred into a trust that the grantor may not amend, modify of terminate entirely, then those assets no longer belong to the grantor. As a result, that divestment allows the grantor to proceed as though he no longer owns those particular assets, thus availing him of a more favorable tax status or Medicaid eligibility status. Examples of types of irrevocable trusts include irrevocable life insurance trusts (ILIT), credit shelter trusts, personal residence trusts, charitable split interest trusts and the wildly popular special (or supplemental) needs trusts.