Law Office of Jason D Jones, P.C.

FAQ's - Trust Settlement

FAQs- Trust Settlement

Revocable Trusts / Pour Over Wills / testamentary trusts

How does a Revocable Trust differ from a Will?

  • A revocable trust is a private instrument where a Grantor transfers property to a trust that is thereafter managed by a trustee for the benefit of one or more beneficiaries.  A trust will rarely be  presented to the Surrogate's Court unless there is a litigation matter.  A Will is a public instrument that has legal effect upon the death of the Will maker and its terms must be probated or "proved" by the Surrogate's Court before it is deemed to be valid.

Why would someone choose a Revocable Trust over a Will?

  • Someone might select a revocable trust over a Will if he or she wants to maintain privacy over what kind of property he or she owns and also over which beneficiaries are chosen.  In the case of a revocable trust, one can actively manage property transferred during life.  Upon death, another trustee appointed by the initial trustee appoints can manage such property seamlessly while avoiding probate, which comes with its own costs and delays.  Two other reasons are privacy concerns and avoidance from creditors.  In New York. for example, creditors only have nine months from the date of death of the Settlor to file for claims against the Settlor's estate.

What is the difference between a Revocable Trust and an Irrevocable Trust?

  • A revocable trust is one where the Settlor and the beneficiary are the same.  It is a Will substitute and the Settlor may revoke all or part of a revocable trust at any time.  Income generated from the revocable trust will be taxed directly to the Settlor.  Upon death, the revocable trust becomes irrevocable, which means that its terms can not longer be modified.  In an irrevocable trust, the Settlor surrenders all control over the trust property over to a trustee to be managed on behalf of one or more beneficiaries.  If trust formalities are correctly followed, then all income generated from the irrevocable trust will be taxed separately from the Settlor.  Upon death, income and or principal from the irrevocable trust will not be included in the Settlor's taxable estate.

What is the proper way to transfer property to a Trust?

  • Property should be transferred to a trust via a schedule at its inception.  If property has been acquired after the trust is settled, then it should be transferred by assignment.  It is important to re-title the property transferred to the trust in the name of the trust in order to respect trust formalities.  For real property to be properly transferred to a trust, the owner of the deed related to the real property must be changed to the name of the trust and then recorded with the county clerk. 

What is a Pour Over Will?

  • A pour over Will, similar to its name, "pours over" all assets acquired after or not properly re-titled in the name of the trust, to the trust upon the Will maker's death.

What is a Testamentary Trust?

  • A testamentary trust is a trust whose terms are contained in a Will.  Testamentary trusts take legal effect upon the death of the Will maker and are subject to oversight by the Surrogate's Court throughout the duration of the trust.  Testamentary trusts normally set their own term limits, such as when a beneficiary reaches a certain age or marries.  Generally, testamentary trusts are settled for young children, relatives with disabilities or others who may receive large inheritances from a benefactor upon death.  Testamentary trusts are also useful when one person's estate is small in comparison to potential life insurance proceeds or amounts to be increased by a growing business.  Trustees of testamentary trusts should be trusted persons.  Note that these trusts may incur legal fees for their ongoing administration. 

special needs trusts / able trusts

What is a Special Needs Trust and when is it appropriate to use one?

  • A Special Needs Trust is oftentimes used to provide extra services or goods to persons with special needs that are not covered by Medicaid or Medicare.  

What is an Able Trust?

  • An Able Trust is similar to a 529 college plan; however an Able trust is used exclusively for special needs children.  These trusts are funded with post-tax dollars and all income earned therein will be used for the education, employment and support of the special needs child.  An Able trust is often used in conjunction with a Supplemental Needs Trust. 

Irrevocable Life Insurance Trusts

What is an Irrevocable Life Insurance Trust and when is it appropriate to use one?

  • An Irrevocable Life Insurance Trust (ILIT) is a trust that owns one or more life insurance policies on behalf of one or more beneficiaries.  Once you have created an ILIT and have placed an insurance policy within, you may not take the policy back in your own name.  You may however dictate whom the initial beneficiaries will be and define the terms under which they will receive trust benefits.  

Should insurance policies be included with other property in one trust?

  • Insurance policies should not be included with other property because these policies have special tax laws that indicate who will be taxed.  Proceeds from insurance policies will not be taxed to the beneficiary who is referenced in the ILIT.  

Who normally serves as trustee of an ILIT?

  • Normally, a spouse or institutional trustee serves as a trustee of an ILIT.  A ILIT trustee will pay insurance premiums for the ILIT each year from the fees that you transfer to him, and the ILIT trustee will also attend to administrative duties and oversee distribution of policy proceeds.


What is a Credit Shelter Trust?

  • A credit shelter trust allows married couples to reduce estate taxes by taking advantage of state and federal estate tax exemptions.  The surviving spouse has access to the income from the transferred property without it being included to his or her own estate and thereby pushing the combined amount over the federal estate tax exemption.  Each spouse executes a trust to "shelter" the first exemption amount of the first spouse to pass away.  Income from the shelter trust along with trust principal will be made available to the surviving spouse, at the discretion of the trustee.  Since the surviving spouse does not control distributions of principal, the shelter trust funds will not be subject to inclusion in his or her estate at death and will not be subject to estate tax. 

What are some other benefits of using a Credit Shelter Trust?

  • Other benefits are that these trusts shield funds from creditors and can also protect children's inheritances, for example, if a surviving spouse remarries and chooses to prioritize other children or a new spouse.

How does a Simple Trust differ from a Complex Trust?

  • A simple trust requires all income to be transferred at least once per year to beneficiaries who pay the income tax.  Further, a charitable institution may not be a beneficiary of a simple trust.  A complex trust must retain income and pay income tax on what it retains.  Income from a complex trust may also be set aside for charities.  A complex trust requires a separate tax ID number. 

other trust types

What is a Subchapter S Trust?

  • A Subchapter S trust is used when a beneficiary is provided ownership of stock.   The beneficiaries must pay income tax on the stock. 

What is an Alaska Trust?

  • This type of trust is technically called a self-settled discretionary trust but is more commonly referred to as a domestic asset protection trust.  The settlor's creditors will be prevented from reaching the assets of this type of trust.  The settlor may form a trust and make substantial "completed" gifts to the trust while still being a discretionary beneficiary of the trust. The settlor's applicable credit would be used to offset any tax produced by those gifts.

Who Should Consider Using an Alaska Trust? 

  • This planning technique makes the most sense for clients who have a potential estate tax problem that would be partially alleviated by making gifts that use the annual exclusion and applicable credit amount and who are also concerned that if their economic fortunes drastically change, they may need access to the funds given away. 


What is the federal and New York estate tax exemption?

  • For 2018, the federal estate tax exemption is $5,600,000 per individual and $11,200,000 per married couple.  The New York estate tax exemption for persons dying April 1, 2017 through December 31, 2018 is $5,250,000 per individual.  No exemption is provided in New York if the taxable estate exceeds 105% of the exemption. 

What is the federal annual exclusion amount for gift purposes?

  • For 2018, the federal annual gift exclusion amount is $15,000, which means that you may give gifts to unlimited persons or charities up to the amount of $15,000 without having those gifts included in your taxable estate.