• Does a Revocable Living Trust provide asset protection?
• What kind of trust provides asset protection?
• What is a Living Will?
• Why is a Living Trust usually better than a power of attorney?
• Why should I consider a Living Trust?
• Who is the trustee of my Living Trust?
• Who should be designated as successor trustee of my Living Trust?
• What is a Special Needs or Supplemental Needs Trust?
• Will my income taxes change if I create a trust?
• Do property taxes change if I create a trust?
• How are the assets put into my trust?
• Are any assets left outside of my living trust?
• If I transfer real estate to my trust can the bank call my loan?
• What is a Pet Trust?

Does a Revocable Living Trust provide asset protection?

During the lifetime of both spouses there is no asset protection provided by a revocable living trust. However, there may be some protection for the survivor after the first spouse dies. The trust can also be created to provide creditor protection for other beneficiaries of the trust.

What kind of trust provides asset protection?

Only an irrevocable trust provides asset protection because the property, once placed into the trust, no longer belongs to the grantor, or creator, of the trust.

What is a Living Will?

A living will, more often called an Advance Directive or Advance Medical Directive, is a document normally incorporated into a Health Care Proxy in which you give directions for life sustaining treatment should you become unable to communicate your wishes.

Why is a Living Trust usually better than a power of attorney?

A Living trust is often recommended to clients as the key document in their estate plan. One reason for this is that the living trust is normally the best method for managing assets during incapacity. A major advantage of the living trust over the power of attorney is that a trustee has actual title to the assets and therefore third parties must deal with the trustee as the owner. An agent does not have title and hence third parties may refuse to deal with the agent. This is a particular problem if the power of attorney was not signed in the last year, because some financial institutions refuse to honor powers of attorney that are more than a year old.

Why should I consider a Living Trust?

Not only does a Living Trust provide for the disposition of your property (like a Will), but it also means that the property in the trust can be distributed without the burden and expense of a probate proceeding, which is necessary for the Will.

Who is the trustee of my Living Trust?

While you are alive, you may act as trustee. For married couples, either one or both spouses may act as trustee or co trustees. The successor trustee is an individual whom you designate to be in charge of your trust in the event of disability or upon death.

Who should be designated as successor trustee of my Living Trust?

You will need to designate one or more successor trustees. These can be individuals, such as family members, trusted friends, trusted professionals, or you could designate an institution, such as a bank or professional trust company. Individuals may predecease you, while an institution will (most likely) still exist at the time of your death. Institutions provide the benefit of experience in money management and trust administration, while family members and close friends are more “personal” and have first hand knowledge of your desires. If you choose an individual, the individual should have some business sense, or you might wish to name an individual and a professional trustee as co-trustees. The downside to co-trustees is the possibility of disagreement.

What is a Special Needs or Supplemental Needs Trust?

A trust established for the benefit of a disabled person is sometimes called “Special” or Supplemental” Needs Trust, or SNT for short. The primary use of a SNT is to enable either the disabled person herself, or a family member or friend, to have funds set aside that will not diminish eligibility for governmental benefits, such as Medicaid or Supplemental Security Income. There are several different types of SNTs, such as “self-settled” SNTs (funded by the disabled person), or “third party” SNTs (funded by someone other than the disabled person). And within these two major categories of SNTs there are several different approaches, depending on the needs of the person and the source of the funding. The Trust must be carefully drafted to ensure that your objectives are met. The Trust must also be carefully administered by the Trustee to ensure that the funds in the Trust are not distributed in such a way that any entitlement to government benefits are jeopardized.

In addition to the term special or supplement needs trust, some of the other terms you may have heard are “self settled trust”, “third party trust”, “sole benefits trust”, and “pooled trust”. Which trust is appropriate to you and your family? How is the trust funded? Who should be the trustee? How does the disabled person receive benefits From the trust? What if the disabled person dies, who are the beneficiaries or the trust? What can Medicaid demand be paid from the trust? These are just a few of the questions you will have and that must be answered after a careful consideration of all the facts.

Before establishing a SNT, it is important to review and discuss all of the issues pertinent to the disabled person and the proposed Trust. We will discuss the disabled person’s disabilities, and whether these are merely physical or also limitations of their mental capacity. We will review what government benefits the disabled person is entitled to, and what the effect will be of any funds available to the disabled person on those benefits. Among many other issues we will also discuss is who the Trustee of the Trust will be, including their relationship to the disabled person and their qualifications for the administration of this important Trust.

Will my income taxes change if I create a trust?

Income earned on the assets in an revocable Living Trust does not change your income tax liability so long as it is a true “grantor trust”. However, income earned on the assets in an irrevocable trust, unless entirely paid out of the trust during the year in which it was received, is taxable at the trust level, and the rate of taxation is generally higher than your individual tax rate.

Do property taxes change if I create a trust?

Generally, property taxes remain the same when real estate is transferred into a Living Trust, although laws vary from state to state and county to county. Applicable state law is determined by the location of the real property, and needs to be reviewed before any transfer is made.

How are the assets put into my trust?

The transfer of assets into the trust is a process called “funding” the trust. Funding a trust entails transferring assets you own in your own name into the name of your trust. For certain transfers, such as real estate, our firm transfers and prepares the documents for you to sign and arranges for the governmental filings required. However, in the case of banking and brokerage accounts, you arrange for these to be re-titled to the trust through documentation provided by the financial institution. If the trust is not funded properly, then the assets may not actually be transferred, and that would defeat your objectives.

Are any assets left outside of my living trust?

Clients typically do not put their entire checking account in the name of the revocable living trust, although this can be done. Certain assets must not be placed into the trust, which as IRAs and pension plans, because this transfer to the trust would be a taxable event just like any withdrawal. It is important is to coordinate the appropriate beneficiary designation with your overall estate plan. This is a complex area of planning and must be based on each person’s individual family circumstances and size of estate.

If I transfer real estate to my trust can the bank call my loan?

Enacted as part of the Garn St. Germain Depository Institutions Act of 1982 (P.L. 97 320; 96 Stat 1501) a due on sale clause can not be enforced on a “transfer into an inter vivos trust on which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property.” This exemption applies to residential real property containing less than five dwelling units {12 USC Sec. 1701j 3(d)}. The regulations list that the borrower in this type of situation must remain the beneficiary and occupant of the property {12 CFR 591.5(b)(vi)}. However, “occupancy” is not defined. Therefore, prudence suggests notifying the lending institution before the transfer.

What is a Pet Trust?

A pet trust is legal document that will provide for the care of your pet in the event you become disabled or die. A Pet Trust is either funded at the time you create it, or upon your death, and identifies who will care for your pet and how. These are frequently used in New York State, which recognizes that our pets are members of the family. The trustee and caretaker may be the same person. Ideally you should name at least one, preferably two or three, alternate caretakers in case your first choice is unable or unwilling to serve as your pet’s caretaker. To avoid having your pet end up without a home, consider naming a sanctuary or no-kill shelter, such as your last choice.

Additionally, you may name a Trust Protector — someone to enforce the terms of the trust. If you don’t name a Trust Protector, one may be appointed by the court. In addition, any person having an interest in the welfare of the animal may request the court to appoint a person to enforce the trust or to remove a person appointed. You may create a pet trust either (1) while you are still alive (i.e., a “living” trust) or (2) when you die by including the trust provisions in your will (i.e., a “testamentary” trust). If using a living trust, it can be either a stand-alone pet trust or provisions that you insert into a comprehensive living trust done as part of your estate planning. A living trust that not only specifies the caretaker but also holds funds for care, avoids delay between your death and the property being available for the pet’s care.

If you create a testamentary pet trust upon your death, the trust does not take effect until you die and your will is declared valid by a court (“probating the will”). Additionally, there may not be funds available to care for the pet during the gap between when you die and your will is probated. In addition, a testamentary trust does not protect your pet if you become disabled and unable to care for your pet.

You should consider many factors in deciding how much money to transfer to your pet trust. These factors include the type of animal, the animal’s life expectancy, the standard of living you wish to provide for the animal, the need for potentially expensive medical treatment, and whether the trustee is to be paid for his or her services. Adequate funds should also be included to provide the animal with proper care, be it a pet-sitter or a professional boarding business, when the caretaker is on vacation, out-of-town on business, receiving care in a hospital, or is otherwise temporarily unable to provide personal care for the animal. You should avoid transferring an unreasonably large amount of money or other property to your pet trust because such a gift is likely to encourage your heirs and beneficiaries to contest the trust. If the amount of property left to the trust is unreasonably large, the court may reduce the amount to what it considers to be a reasonable amount.

The trustee is typically either a trust company or a family member or other individual you trust to manage your property prudently and make sure the beneficiary is doing a good job taking care of your pet. A family member or friend may be willing to take on these responsibilities at little or no cost. However, it may be a better choice to select a professional trustee that has experience in managing trusts even though a trustee fee will need to be paid. If you do name an individual, you should name at least one, and preferably two or three, alternate trustees in case your first choice is unable or unwilling to serve as a trustee. You probably also want to check with the person before-hand to be sure the persons you name as your trustees will be willing to do the job when the time comes.

You should name a “remainder beneficiary” — a person or organization to receive any remaining trust property after your pet dies. Note that it is not a good idea to name the caretaker or trustee because then the person has less of an incentive to keep your pet alive. Many pet owners elect to have any remaining property pass to a charitable organization that assists the same type of animal that was covered by the trust.

What if the trust runs out of money? Hopefully the trustee or caretaker will be able to continue to care for your pet. However, if no money remains in the trust, and the trustee is not able to pay for your pet’s care, then you can provide for a successor caretaker. If the original caretaker is unwilling or unable to continue to provide care, and the successor caretaker is too, then the trust specify the organization to whom you would like to entrust your pet if possible. No organization is obligated to accept your pet, however most no-kill shelters and rescue organizations have very dedicated staff and volunteers who will help your pet find a new home.

(Andrea Lowenthal has three well-loved dachshunds, Harry, Max and Lily).