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Establishing A Trust: An Important Part of Your Overall Estate Plan

Establishing A Trust: An Important Part of Your Overall Estate Plan.

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Establishing A Trust: An Important Part of Your Overall Estate Plan

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  1. Establishing A Trust: An Important Part of Your Overall Estate Plan The Law Office of Terrence P. DwyerOffice addresses – by appointment only:141 North State RoadBriarcliff Manor, NY 10509277 Main StreetCatskill, NY 12414Mailing Address:Post Office Box 1996Poughkeepsie, NY 12601TEL 845.849.3706TPDLAW@aol.comwww.tpdlaw.net

  2. INTRODUCTION TO TRUSTS • Trust Instrument: a written instrument that creates a trust, i.e., a will, trust agreement or declaration of trust. Will – creates a testamentary trust. Trust agreement – a written agreement (contract) between the settlor and the trustee(s) that creates the trust and is signed by them. Declaration of trust – a document that creates a trust in which the settlor is also the trustee. The document declares the creation of a trust in which the settlor names him/herself as trustee and retains the legal title but transfers the equitable title to the trust property to another person.

  3. INTRODUCTION TO TRUSTS • Legal title – the complete and absolute right of ownership and possession • In the law of trusts, the trustee, who manages and administers the trust, holds the legal title without the benefits of the trust, i.e., without the right to receive financial profit from it. • Equitable title – refers to the right of the beneficiary to receive the benefits of the trust • the beneficiary is regarded as the “real owner”, i.e., entitled to receive the beneficial interest of the trust (eg., right to receive income from the trust) although the legal title is held by another.

  4. INTRODUCTION TO TRUSTS • Revocable living trust – a trust the settlor has the right or power to revoke or change any time prior to death • the power must be expressly stated or reserved in the trust instrument, otherwise trusts are generally irrevocable • property placed in a revocable trust becomes a non-probate asset and is not subject to probate • however, it is still subject to creditor’s claims • it is included in the decedent’s gross estate and subject to federal estate tax • Irrevocable living trust – once created it cannot be revoked or changed by the settlor • property placed in the trust is not subject to probate or federal estate tax.

  5. INTRODUCTION TO TRUSTS • Essential Elements of a Trust Every trust has the following elements: a) a settlor who creates the trust b) one or more trustees who administer and manage the trust c) one or more beneficiaries who receive the benefits (income and/or principal) and enforce the trust d) real or personal property that must be transferred to the trust

  6. INTRODUCTION TO TRUSTS • A trust differs from other ways in which property is held – • title to real or personal property in a trust is said to “split” in that it is divided in interests as to legal title and equitable title. • The trustee receives the legal title and the beneficiary receives the equitable title.

  7. INTRODUCTION TO TRUSTS • Benefits of a trust: • need for probate is minimized • continuity of asset management • confidentiality in estate administration process • costs of estate administration are lowered • There is no estate tax advantage, however, in placing assets in a revocable trust. The Internal Revenue Code has provisions which make a revocable trust’s assets fully includable in the grantor’s estate.

  8. INTRODUCTION TO TRUSTS • A trust is not for everyone, individual planning needs will vary, but trusts have become more commonplace over the last twenty years as part of the average person’s estate plan. • Trusts provide a variety of functions which can be tailored to individual lifetime and post-mortem planning needs. There are insurance trusts, qualified personal residence trusts, gift trusts, stand-by trusts, spendthrift trusts, to name a few among a broad base of planning needs.

  9. INTRODUCTION TO TRUSTS • As a planning tool trusts are more expensive to initially set up than a will but will provide for greater long-term savings in legal and other associated costs. • The reason for the higher expense in setting up a trust is in the trust document itself which is more complex in drafting than a will and the need for property transfers in funding the trust.

  10. INTRODUCTION TO TRUSTS • Trusts should be a key component of an individual’s asset and estate plan. • Trusts should only be created after meeting with and hiring a legal professional who will guide you in the process and work in conjunction with any financial and accounting advisors you may have. • Trusts are no longer a tool for the very wealthy but a sensible planning document for the middle class as well, provided the circumstances warrant such an approach. Once again, this is a situation where a legal advisor can guide you in your decision and planning.

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