Trusts
With the above points about wills in mind, New York and Connecticut have cumbersome probate procedures (i.e., the procedures to process wills upon death).
Note: the probate procedures in some counties in New York have become especially onerous for various reasons. We can review with you which counties are experiencing this problem, and how to take the appropriate action.
Revocable Trusts: A brief primer.
What is a trust?
A trust is a legal entity created by a party (the trustor/settlor/grantor) through which a second party (the trustee) holds the right to manage the trustor’s or property for the benefit of a third party (the beneficiary). The four main types of trusts are: (1) Living: trust created by the trustor while he or she is alive. (2) Testamentary: trust established through a will and which comes into effect (is created) when the trustor dies. (3) Revocable: trust that can be modified or terminated by the trustor after its creation. (4) Irrevocable: trust that cannot be modified or terminated by the trustor after its creation.
What is a trustee? An individual or corporation named by an individual, who sets aside property to be used for the benefit of another person, to manage the property as provided by the terms of the document that created the arrangement.
Note: A trustee normally owes an undivided duty of loyalty to all current and future beneficiaries of the trust. This may mean, at least in some cases, that the trustee must consider the interests of the remainderpersons (future beneficiaries) (and any other current income beneficiaries) in determining whether to make a discretionary payment to or for a particular current beneficiary.
As a general rule, these duties to consider the interests of the other current or future beneficiaries can be expressly waived, so that the trustees can merely decide if making the distribution for the Beneficiary is appropriate without regard to the standard duty of loyalty the trustees otherwise would owe to any other current or future beneficiaries of the trust.
We can assist you with making the appropriate choices.
Revocable trusts
By holding title to more of your assets in a revocable trust (sometimes called a living trust), you reduce the need to go to court to administer your estate, and thereby may reduce the cost of administration.
Note: Putting assets in a revocable trust does not change the income tax treatment of those assets, but it can significantly reduce the costs of administering your estate at your death and enable the distribution of your assets more quickly and expeditiously.[OBJ:RT 1547]
Note: You can revoke or amend a revocable trust at any time. For income tax purposes, you own the trust’s assets personally, and during your lifetime the trust will typically use your Social Security Number for tax ID purposes and need not file a separate income tax return during your
Note: If the Trust is funded, all the trust’s income must be reported by you.
Funding your trust will free the assets in the trust from probate before the state courts and permit their easy management by the successor Trustee in case of your disability. These may be very significant benefits, particularly with respect to certain assets, such as out-of-state real estate.[OBJ:RT 1621]
Note: Funding a revocable trust will not change the estate tax obligations of your estate or your income tax obligations during your lifetime. [OBJ:RT 1622]
Note: To help completely avoid probate, all tangible personal property must also be transferred to a revocable trust.
We will assist you with clarifying your intent respect what assets are added to your trust.
We will assist you with regard to the interplay between retirement plan benefits and how your trustee would manage those benefits.
We will assist you with avoiding the added costs of ancillary probate proceedings in the state in which other assets are located.
We will assist you with the transfer of business interests to your revocable trust.
We will assist you with determining whether to contact the mortgage holder of any property you may own which transferred to your revocable trust.
We will assist you with notifying your title insurance company to determine if the real estate transfer to the trust will affect the policy.
We will assist you with checking on other insurance relating to the trust property (i.e., household or liability insurance) to see if the transfer to the trust will affect that coverage.
Life Insurance
Most times, life insurance is includable in your estate for estate tax purposes.
However, life insurance, pursuant to the IRS Code, can be excluded from your estate for estate tax purposes by the use of an irrevocable life insurance trust (commonly referred to as an “ilit”). Ilits need to be drafted with care however, to ensure compliance with a complex Code. Trustees also need to be selected with discretion.
Some items of importance in New York
New York has its own estate tax. It is a “cliff” tax, meaning that if the value of your estate exceeds the estate tax exemption threshold (as of April 1, 2016 the estate tax exemption is $4,187,500), the entire value of your estate is includable in your estate for New York estate tax purposes.
Life insurance is includable in the calculation.
Unlike the federal exemption, the New York State estate tax exemption is not portable to a surviving spouse upon death. Planning can help alleviate the consequences of this issue.
Estate tax rate. The New York State Estate Tax top rate is 16% making planning for those above the exemption amount of $4,187,500 essential to help alleviate the consequences of the New York’s new “cliff” tax.
Gifts. With the New York estate tax law enacted in 2014, there is a limited three-year look-back period for gifts made between April 1, 2014, and January 1, 2019. This means that if a New York resident dies within three years of making a taxable gift, the value of the gift will be included in the decedent’s estate for purposes of computing the New York estate tax.
Note: The process of having successor trustees appointed by the New York Surrogate’s Court’s system is onerous. The use of revocable trusts (versus wills) can help make the transition to successor trustees easier.
Note: New York does not recognize separate or “side” memoranda for the disposition of tangible personal property.
Some items of importance in Connecticut
Estate tax. Connecticut has its own estate tax. The exemption amount per person is $2,000,000. Unlike the federal exemption, it is not portable to a surviving spouse upon death. Planning can help alleviate the consequences of this issue.
Gift tax: Connecticut is the only state with its own gift tax.
Probate Court Fee. The Connecticut Probate Court fee applies still applies even if your estate representative never interacts with the probate court to administer assets.
Note: There is no longer a “cap” on the Connecticut Probate Court fee.
Note: The Connecticut Probate Court fee applies to a deceased spouse’s estate, even if the surviving spouse receives all of the assets.
Triannual reporting for trusts. The Connecticut statutes require that many types of trusts formally account to the Probate Court every three years. We can assist you in ways to avoid this requirement.
A Surprising Consequence: You die without a will in Connecticut. You have no children. You have a surviving spouse and at least one parent surviving you. Your surviving spouse shares in the decedent’s assets. So do your parents.
Note: According to our discussions over the years with Connecticut probate court clerks, many people neglect to transfer their cars to their revocable trusts resulting in an unwanted probate proceeding. We can assist you with transferring your cars to your trust.
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