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living trust

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When planning for your estate, consider your goals. Stock photo

By Nancy Burner, Esq.

Nancy Burner, Esq.

While there are very good reasons for creating a trust, the TYPE of trust is of great consequence and depends upon many facts and circumstances. No one should create and fund a trust unless they understand the reason — the problem (or problems) they are trying to solve. This article is intended as a simplified “primer” on the most common trusts used in estate planning. It is not exhaustive by any means but certainly provides a framework for designing an estate plan.

First, what is a living trust? A living trust is a document executed by you as the grantor or creator during your lifetime, as opposed to a testamentary trust that is created at your death. It is a free-standing document that sets forth how your trust assets should be managed during your lifetime and distributed at your death. 

One of the most common living trusts is the Revocable Trust. This document is meant to obviate the need for probate by titling all assets in the name of the trust. If properly drafted and funded, this trust will alleviate delays, make the administration of your assets seamless and significantly reduce the legal fees costs incurred on the settling of  your estate after you die. 

Typically, you would be the Grantor and Trustee of your own revocable trust. In the trust document you would name successor Trustees to act in the event of your incapacity or death. The revocable trust uses your Social Security number and is not a separate taxable entity.  

Another common trust is the irrevocable Medicaid qualifying trust. This trust will also avoid probate and has the added benefit of protecting assets should you require long term care in a nursing home or care at home through the Medicaid program. This trust is often funded with your home, as well as other assets. You would not be the Trustee of this trust, but you would name one or more of your beneficiaries or any other trusted individual  to act on behalf of the trust. Even if your home is transferred to this trust, you will still pay all the expenses of maintaining the home and have exclusive use and occupancy. 

You would also enjoy all the tax benefits like star exemptions, capital gains exemption upon the sale of your primary residence and your heirs would still obtain a step up in basis at your death. All income earned by the trust can be paid to you or accumulated in the trust, but will still be taxable to you at your individual rate.  

Often clients do not realize that life insurance proceeds are taxable in their estates. With the federal exemption likely to be cut in half by January 1, 2026, keeping the value of life insurance proceeds out of your taxable estate is a number one priority for many. A well drafted irrevocable life insurance trust (ILIT) will avoid such taxation. If the life insurance trust purchases the policy, then the life insurance will be completely outside your taxable estate. If you already own the policy and then transfer it to your insurance trust, you must survive the transfer by three years. 

With the prospect of the federal estate tax exemption being drastically reduced, many clients are opting to create spousal limited access trusts (SLAT). The SLAT could be used to transfer a significant amount of wealth out of your estate while the exemption is high. A SLAT is an irrevocable trust created by one spouse for the benefit of the other during his or her lifetime. The SLAT can provide income and principal distributions for the benefit of the non-grantor spouse and descendants, with the spouse being primary. The spouse can serve as a Trustee. 

Furthermore, assets in the SLAT are protected from the spouse’s creditors and not included in the spouse’s taxable estate. 

When planning for your estate, consider your goals. Do you have  taxable estate or are you worried about the cost of nursing home care? The solution should address those issues.  

Nancy Burner, Esq. is a Partner at Burner Prudenti Law, P.C. focusing her practice areas on Estate Planning and Trusts and Estates. Burner Prudenti Law, P.C. serves clients from New York City to the east end of Long Island with offices located in East Setauket, Westhampton Beach, Manhattan and East Hampton.

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Living Trust. METRO photo

By Nancy Burner, Esq.

Nancy Burner, Esq.

A key tool in the estate planner’s toolbox is a living trust. The term “living trust” refers to a document created during life that establishes a legal entity which can own certain assets.  The term differentiates a living trust from a “testamentary trust,” which is created after death. A further distinction to be made is whether the trust is Revocable or Irrevocable. Regardless of the title of the trust, the terms of the document will dictate the rules of how the assets in trust are managed and what control is retained by the trust creator.

A revocable trust leaves the creator with complete control over trust assets. The creator can be named as trustee with the power to revoke, amend, and restate the trust. Further, the creator’s Social Security number is used for the trust’s estate and income tax reporting. The main purpose of creating a revocable trust is to avoid court involvement after death. 

Assets that are not in a trust, do not have a joint owner, and do not name a beneficiary, require a court process after death. For those assets, the New York State Surrogate’s Court process is called probate, if the deceased person had a will, and administration, if they died without a will. There are several reasons to avoid the court after death, varying from disinheriting family members or not knowing your family, to owning property in multiple states or having disabled beneficiaries. For these and other purposes, the creation of a trust is often recommended.  

Beyond revocable trusts, circumstances may dictate the creation of an irrevocable trust. Irrevocable trusts are those that are written in a way to limit the creator of the trust in some fashion. The exact limitations will depend on the goals of the trust.  Common reasons to create an irrevocable trust are for Medicaid planning purposes or estate tax planning.  

For estate tax planning, two such trusts are an Intentionally Defective Grantor Trust (“IDGT”) and a Spousal Limited Access Trust (“SLAT”). Assets owned by an IDGT are removed from the creator’s estate, placing the growth outside of their taxable estate while taxing the income to the creator.  A SLAT is an irrevocable trust created by one spouse for the benefit of the other. The SLAT can provide income and principal distributions to the spouse and other beneficiaries. While the contributing spouse makes an irrevocable gift to the trust and gives up any right to the funds, the beneficiary spouse and other beneficiaries are provided immediate access to the gifted funds. Both the IDGT and SLAT are tools for claiming the benefit of the current Federal estate tax exemption ($12.06 million in 2022) before it expires.

Most people do not realize that the death benefit of life insurance is taxable in your estate. Creating an Irrevocable Life Insurance Trust (“ILIT”) and transferring policy ownership to the trust removes the death benefit from the taxable estate. This also provides liquidity to pay any taxes imposed on the balance of the estate.

If the goal is to protect assets while obtaining eligibility for Medicaid benefits, it may be prudent to create a Medicaid Asset Protection Trust (“MAPT”).  Under this type of trust, the creator should not be the trustee.  While the creator can receive income distributions, they are restricted from accessing principal of the trust.  

All trusts, whether revocable or irrevocable, can avoid court process after death so long as the document is drafted and funded properly. The type of trust and exact terms can be determined by an estate planning attorney to ensure the client’s specific circumstances and goals are considered. 

Nancy Burner, Esq. is the founder and managing partner at Burner Law Group, P.C with offices located in East Setauket, Westhampton Beach, New York City and East Hampton.

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By Linda M. Toga, Esq.

Linda Toga, Esq.

THE FACTS:   I want to be sure that I do not receive end-of life-medical treatment that will do little other than prolong my life. 

THE QUESTIONS: Is the document in which I can state my end-of-life wishes called a living trust or a living will?

THE ANSWER: The document in which you can memorialize your wishes with respect to the medical treatment to be administered or withheld when you are near death is called a living will. 

A living will differs from a living trust, also known as a revocable trust, because a living will has nothing to do with how your assets are handled during your life or distributed upon you death. 

Instead, a living will provides the person you name as your agent in your health care proxy, your next of kin and/or your health care provider with important information about how you would like to proceed if your doctor has determined that your condition is likely to cause death within a relatively short time and you are unable to express your wishes about your medical treatment.  

A properly drafted and executed living will can also serve as clear and convincing evidence of your wishes in the event a court is asked to decide whether or not your health care provider must honor your wish to withhold medical treatment. 

A living will gives you the opportunity to put into writing what types of medical treatments, procedures and medications you do not want if you have suffered from a significant loss of mental capacity and you cannot eat or drink without assistance or you have an irreversible or incurable medical condition with no likelihood of improvement.

For example, in your living will you can state that you want medical treatment withheld if you suffer from dementia or some other form of mental impairment and there is no reasonable likelihood that such treatment will restore your ability to be oriented and interact with your environment. 

You can direct your health care provider to withhold treatment if you lack mental capacity and need a feeding tube. You can also state in a living will that treatment should be withheld if you exhibit significant mental impairment combined with a condition that is likely to cause death in a relatively short time, as determined by your doctor. 

Examples of the types of life-sustaining treatments and procedures you may want withheld include cardiopulmonary resuscitation, dialysis, artificial hydration, artificial nutrition (feeding tubes), mechanical respiration, antibiotics, experimental medications and surgical procedures. Under many circumstances, these sorts of treatments and procedures serve to prolong life but do not necessarily have any impact on a patient’s underlying medical condition. 

While asking that such life-sustaining treatments be withheld, living wills generally direct the health care provider to the administration of pain medication and to take the steps necessary to keep the patient comfortable. 

Since a living will is a document in which a person essentially rejects life-sustaining treatments, sometimes referred to as “heroic measures,” people who have a living will may effectively hasten their own death. As such, a living will is clearly not appropriate for people who want all possible measures to be taken to keep them alive. 

Because of the moral and religious issues associated with a living will, it is likely the most personal and emotionally charged estate planning document you can sign. It is, therefore, extremely important that you give serious thought to your options when deciding if a living will is right for you and discuss your wishes with an attorney who has experience preparing living wills. 

Linda M. Toga, Esq. provides personalized service and peace of mind to her clients in the areas of estate planning, real estate, marital agreements and litigation. Visit her website at www.lmtogalaw.com or call 631-444-5605 to schedule a free consultation.

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