Law Office of Jason D Jones, P.C.

Trust Settlement & Maintenance

Trust Settlement & Maintenance

“A trustee is held to something stricter than the morals of the marketplace. Not honestly alone but the punctilio of an honor the most sensitive, is then the standard of behavior …Only thus has the level of conduct for fiduciaries been kept at a level higher than that trodden by the crowd.”

- Justice Benjamin Cardozo

No longer considered as wealth planning devices for the ultra-wealthy, trusts are remarkably flexible estate planning vehicles, especially so for those who have privacy concerns or who need to manage substantial assets.  Revocable trusts are settled during one’s lifetime and are Will substitutes. The income accrued in these trusts is taxable to the Settlor with terms can be amended or revoked at any time. Irrevocable trusts are for the most part unchangeable: the Settlor surrenders all "incidents of ownership" in order to gain preferential estate tax and other treatment. 

Clients have entrusted me with holding legal title to multi-million dollar irrevocable trusts as Trustee. Whether you require a standard trust or something more specialized like an asset protection or a pet trust, lean on me to explain to you which trust type best fits your needs, taking into account the type of property you own and your tax and non-tax objectives. 


How does a Revocable Trust differ from a Will?

  • A revocable or inter-vivos trust is a private document. Once the Grantor transfers property into his or her revocable trust, it is managed by a trustee (who may also be the trustee) who holds legal title of the trust funds for the benefit of one or more beneficiaries. Revocable trusts are not probated and they must be funded to have any legal effect.

How does the standard of capacity differ between a Will and a Trust?

  • Any person eighteen years or older may settle a trust but the standard of capacity required to do so is higher than in a Will. The capacity threshold required to settle a trust is the same as that is required to execute a contract. However, this also means that it is harder to challenge a trust once it is settled.

Why would someone choose a Revocable Trust over a Will?

  • A revocable trust is a good option as a Will substitute if the grantor wants to maintain privacy and control over property and beneficiaries. In a revocable trust, the grantor can actively manage property transferred during life, so it serves an an effective means to centralize and management assets. The grantor can also test out how a selected trustee would monitor the investments placed in the trust. Upon the death of the grantor, the selected trustee, co-trustees or even an independent trustee can manage such property seamlessly without probate, saving considerable time and money. A revocable trust also provides protection for its beneficiaries from judgment creditors. Finally, once the Settlor passes, financial institutions might be more prone to give access to trust funds to a trustee than to an agent under a statutorily recognized power of attorney.

What types of property may be transferred into a revocable trust?

  • A revocable trust will only have legal effect if it is funded which happens when the property is re-titled into the name of the trust. Bank and brokerage accounts, LLC interests and corporate stock can all be transferred to an revocable trust, as well as valuable tangible items like artwork or jewelry. Real property may be transferred to a trust by re-titling the deed into the name of the trust. This is most useful for real property that exists outside of the state where the decedent was domiciled so that ancillary probate may be avoided.

What types of property may not be transferred to a revocable trust?

  • Any retirement plan such as a Roth IRA, 401 K, defined benefit plan, profit sharing plan or cash balance plan can never be transferred into a trust because due to federal law, such plans are inalienable and can only pass between natural persons. The same restriction applies to life insurance which passes per beneficiary designation forms.

What is a Pour Over Will?

  • A pour over Will works in conjunction with a trust. Similar to its name, it "pours over" all assets acquired by the trust settlor that are not properly re-titled in the name of the trust upon the trust settlor’s death. The trust must be in existence or signed contemporaneously with the pour over Will in order to transfer assets.

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 their duration. 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 transferred to it by a growing business. Testamentary trusts may also incur legal fees for their ongoing administration.

Can I use my trust to purchase coop shares in New York?

  • Technically yes, but practically no. Coop boards manage coop buildings and impose various restrictions on coop shares and the proprietary leases appurtenant to the apartment units. Coop boards are wary to allow trusts to purchase coop shares because trusts, by their nature are private documents, and coop boards do not want to open the floodgates to unknown numbers of people to have a right to reside in the apartment units apart from the unit owner.

What is an ABLE Trust?

  • An ABLE Trust is similar to a 529 College Plan but it is used exclusively for special needs children. These trusts are funded with post-tax dollars and all income earned therein must be used for the education, employment and support of the special needs child. ABLE trusts are most 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) owns one or more life insurance policies on behalf of one or more beneficiaries. Once the grantor creates an ILIT and places an insurance policy within, the grantor may not take the policy back in his or her own name nor may the grantor be an ILIT beneficiary. The grantor 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 commingled with other property in an ILIT because they are subject to special tax laws that indicate who will be taxed.

Who normally serves as trustee of an ILIT?

  • Normally, a spouse or institutional trustee serves as a trustee of an ILIT. An ILIT trustee pays insurance premiums each year on the ILIT from the fees transferred to him from the Grantor. The ILIT trustee also attends to administrative duties and oversees distribution of policy proceeds.


What is a Credit Shelter Trust?

  • A credit shelter trust, or marital trust, permits married couples to reduce estate taxes by taking advantage of their combined federal and state estate tax exemptions. The surviving spouse will have access to the income from the transferred property without it being included in his or her own estate. Each spouse executes a trust to "shelter" his or her exemption amount so regardless of which spouse survives the other, the amount is sheltered. Income from the shelter trust along with trust principal will be made available to the surviving spouse, at the discretion of the trustee. As the surviving spouse does not control distributions of principal, shelter trust funds are not subject to inclusion in the surviving spouse’s estate, nor are they subject to estate tax upon the death of the surviving spouse. Sheltered trust funds, along with the unused portion of the surviving spouse’ marital trust, and flow through to the remainder beneficiaries, who are usually the children. Credit shelter trusts also shield funds from creditors, thereby protecting children's inheritances if a surviving spouse remarries and chooses to prioritize other children or a new spouse.

What are the risks of using a Credit Shelter Trust?

  • Using a Credit Shelter Trust is often preferable to transferring funds to the surviving spouse’s creditors outright because such funds will be subject to surviving spouse’s creditors. However, problems may arise if the marital portion of a creditor shelter trust is made overly restrictive so it is important to structure the marital trust so that it is flexible. Ways to make the marital trust more flexible is to name the surviving spouse as a co-trustee, to provide for a broad distribution standard rather than an ascertainable one that is limited to health, education, maintenance and support, to name the surviving spouse as the Protector of the trust thereby allowing him or her to remove the Co-trustee, and to provide the surviving spouse with a broad testamentary power of appointment to his or her descendants.

Qualified Domestic Trusts (QDOTs)

What is a QDOT?

  • A QDOT is a type of grantor trust for the benefit of non-US citizen spouses. Forming a QDOT and putting all assets into it allows a non-citizen surviving spouse to take advantage of the marital deduction of all estate taxes.  A QDOT only protects the assets of decedents who have died after November 10, 1998. In addition, at least one trustee of the QDOT must be a U.S. citizen or a domestic corporation that is authorized to retain estate tax. If all these conditions are met, forming a QDOT and placing marital assets into it can preserve assets for the surviving non-citizen spouse. Although a QDOT allows the qualifying non-citizen surviving spouse to take the marital deduction on assets inside the trust, the trust is not exempt from paying the estate tax. It merely defers the estate tax until the death of the surviving non-citizen spouse.


What is a SLAT?

  • A SLAT is a type of grantor trust that is taxed to the trust grantor so that the funds placed therein can grow tax free. SLATs function as more robust ILITs and can avoid the paperwork required for withdrawals from ILITs. In addition, it unlocks life insurance cash values for the living needs for the spousal beneficiary. The lifetime distributions to the spousal beneficiary must comport to an ascertainable standard such as health, education, maintenance and support.


How does a pet trust differ from other types of trusts?

  • A pet trust is settled for the benefit of your domestic animal. Although animal rights have increased, pets are still considered as property under the law. One may not leave property outright to a pet in a trust.

How can I best provide for my beloved pet once I pass?

  • Provisions for a pet made under a Will or testamentary trust are not ideal because both are effective only upon death and will only be distributable when the Will is probated and a trustee is appointed. There will likely be a significant delay between the death of the pet owner and the conclusion of the probate proceeding and the appointment of a trustee. If one settles an inter-vivos trust, then the trustee can act on behalf of the pet immediately, but only if the trust is funded.

How much should I leave for my pet?

  • The late Leona Helmsley famously left $12,000,000 to her dog Trouble, disinheriting her grandchildren along the way. The New York Surrogate’s Court greatly reduced this pet bequest, ruling that it was too large. How much the court will deem reasonable is a facts and circumstances based inquiry; however, a decent earmark is $35,000 to $40,000 and with a clear plan to distribute excess funds upon the death of the pet.

How are pet trusts treated tax wise?

  • Pet trusts may not be settled as simple trusts because pets are not natural persons. Pet trusts are limited to being formed as complex trusts which means that income accrued that does not need to be distributed annually. Income not distributed will be taxed in pet trusts at higher rates so it is important not to leave excess funds. Outside of the trust context, the tax free federal annual gift tax exclusion is not available for pets.


How can a SNTs help a disabled person?

  • An SNT is an estate planning tool that allow for funds to be available to a disabled person without being counted against Medicaid and SSI so long as the SNT meets the legal requirements. These requirements are that the trustee does not distribute funds directly to the beneficiary and SNT funds can only be used to supplement, not supplant, government benefits. If a disabled person has large medical expenses, without using a SNT, he or she might quickly exhaust lawsuit proceeds and might be left with no funds to enhance his or her quality of life.

Who would most benefit from the use of an SNT?

  • Current recipients of Medicaid and/or SSI, disabled individuals who are potential recipients of Medicaid /SSI or other means-tested benefits, such as individuals in early stages of progressive conditions, individuals with a long term history of mental illness who will likely require medical /psychiatric care throughout their lifetime, and individuals with conditions such as dementia who will likely require long term care at home or in a nursing home would most benefit from the use of an SNT.

Which items can be paid to a disabled person from an SNT?

  • An properly settled SNT can pay for health care, a home, care givers, computers, transportation, vocational training, insurance coverage, specially equipped vehicles, vacations and other luxuries.

What are the different types of SNTs?

  • There are third party SNTs (trusts created by a third party for the benefit of a disabled person with funds that do not belong to the disabled person), first party SNTs (trusts funded by the assets of a disabled person under 65, which must provide for payback to Medicaid upon the disabled person’s death) and pooled asset SNTs (a first or third party SNT for individuals aged 65 and older that are administered by not-for-profit organizations).

Which assets can fund an SNT?

  • An SNT can be funded by lump sum cash payments from personal injury actions, structured annuity payments, or any combination of the above.

If my loved one has an SNT, what kinds of benefits might be affected?

  • Section 8 benefits that provide rental subsidies, HEAP benefits that cover heating costs to low income person and food stamps might all be affected.

What is a Subchapter S Trust?

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

What is an Alaska Trust?

  • An Alaska Trust is a self-settled discretionary trust or a domestic asset protection trust. The main objective of settling this type of trust is to prevent its Settlor's creditors from reaching the trust assets. Once the Settlor forms an Alaska trust, he or she makes substantial completed gifts to the trust while remaining a discretionary beneficiary. The Settlor's applicable credit is used to offset any tax produced by those gifts. This planning technique is useful for clients who have a potential estate tax problem or who are concerned that if their economic fortunes drastically change, they may need to access funds.


What is the federal and New York estate tax exemption?

  • For 2019, the federal estate tax exemption is $11,400,000 per individual and $22,800,000 per married couple. The New York estate tax exemption for persons dying January 1, 2019 through December 31, 2019 is $5,740,000 per individual. No exemption is provided in New York if the taxable estate exceeds 105% of the allowed exemption and no portability between spouses is allowed between in New York.

What is the federal annual exclusion amount for gift purposes?

  • For 2019, 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. The annual exclusion for gifts made to non-citizen spouses in 2019 is $155,000.

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