The federal estate tax threshold for an individual is currently $5.43MM (and double that for most married couples). The New York State estate tax threshold is currently $2.06MM (and set to rise to the federal level by 2019). That all means that for the vast majority of New York residents, estate taxes are no longer an important reason to consider creating a trust.
Does that mean that no one needs a trust anymore? Not exactly. Below are the top 10 reasons why you might still want to create a trust:
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You want to avoid probate. If the assets are owned outright at the time of death and there is a will, then the family must go through probate. If the assets are owned outright at the time of death and there is no will, then the family must go through administration. Both probate and administration are costly, long-lasting, and often frustrating court processes. Placing assets in a trust avoids this hassle for your family.
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You favor privacy. The text of your will and the names and addresses of the people to whom you left money and property become part of the public record. A trust document, on the other hand, is completely private. If you have unusual family dynamics or a publicly recognized name you might want to keep the distribution of your assets private.
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You want to make it easier for your family to get control of your assets. If you place assets in a revocable trust, you can name yourself as a trustee while you are capable of acting. You name a successor trustee (a family member or an institution) to take over in case of you lose capacity or death. The transition is orderly.
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You have real estate in more than 1 state. If you have real estate property in more than one state, the family will have to go through the probate process in each state. Each state has its own rules and complications, and attorneys will have to be hired in each of these states.
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You have children who are professionals (doctors, lawyers, accountants, real estate owners). By placing assets in a trust, you can protect your children’s inheritance from creditors and malpractice claims. You can also protect your children’s inheritance from divorce proceedings.
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You have children or grandchildren who are minor. In a trust, you can specify when and under what circumstances your beneficiaries will receive the money. However, you will still need a will in order to specify who will be the guardian of your minor children.
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You have a family member who is not good with money or who has a drug / alcohol / gambling problem. You might want some kind of outside management for that beneficiary’s share of your estate.
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You have a child, a grandchild or a relative with a disability. If they are receiving public benefits like Supplemental Security Income (SSI) or Medicaid, you will want to create a special needs trust for any share of the inheritance that they will receive.
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You may want to change your mind. A trust often has the language that permits the Grantor to change the disposition of the assets amongst the various beneficiaries of the trust. Thus, if for now your trust beneficiaries are your son and your daughter equally, and later you want to give only 25% to your son, you do not need to create a new trust in order to accomplish that. You can simply write a letter stating your new preferences, and sign it in front of a notary.
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It is harder to challenge a trust. To submit the probate or administration petition to court, an agreement from all your potential distributees is required. If one of the children wants to cause problems, the probate process and litigation may take years and cost thousands. A trust, on the other hand, does not require a sign off from the beneficiaries in order for the assets to be distributed.
This article only offers general information. Each situation is unique. It is always helpful to talk to a specialized attorney, to figure out your various options and ramifications of actions. As every case has subtle differences, please do not use this article for legal advice. Only a signed engagement letter will create an attorney client relationship.