A living trust is one way to make things as easy as possible for your family after you’re gone. That’s because a living trust an limit your family’s exposure to difficult things, like the probate process. If you are living in New York and thinking about creating a living trust, this article will provide you with all of the relevant information you need, including a step-by-step guide through the process.
A financial advisor can help you create an estate plan for your family’s needs and goals.
How to Create a Living Trust in New York
These six steps will help you create a living trust in the Empire State:
- Figure out which type of trust you need: A single trust is for just one person, so if you’re single that will likely be the choice you’ll make. If you’re married, though, a joint trust might make more sense. A joint trust allows you to place joint property like cars or homes into the trust.
- Take stock of your property and assets: Make sure you know exactly what you own and what you want to put into the living trust. Assets you can put into a living trust include real estate, family heirlooms, artwork, stocks, bonds and mutual funds. You’ll also need to gather relevant paperwork for your property, like records of home ownership or titles to vehicles.
- Choose your trustee: You can name yourself the trustee or you can choose someone else. If you name yourself, you’ll also need to name a successor trustee who will take over once you’ve died or if you become incapacitated. A trustee will be responsible for making sure the property in the trust goes to the right people, so you’ll also want to decide which of your heirs gets which piece of property.
- Make the actual trust document: You can do this by yourself with the help of an online service or hire an attorney.
- Get the document notarized: Once you’ve created the trust document, you’ll need to sign it in front of a notary.
- Fund the trust: You can do this by transferring your property in to the trust. You can do this by yourself, but it requires some paperwork and a lawyer may make it easier.
What Is a Living Trust?
A living trust is a document establishing a legal framework within which to store a person’s assets. A living trust details a grantor’s wishes for his or her assets and is intended to make the transfer of those assets to beneficiaries easier. Each living trust has a trustee, who is responsible for overseeing the assets in the trust and ensuring the assets are passed along to the trust’s beneficiaries according to the trust’s instructions.
There are two types of living trusts: irrevocable living trusts and revocable living trusts. Irrevocable living trusts are permanent. Once assets are placed in irrevocable living trusts, they cannot be removed unless each person named in the trust gives his or her express permission. You’ll relinquish control of the assets you place into an irrevocable living trust, and thus taxes will apply to the trust itself, not to you.
A revocable living trust, on the other hand, is more flexible. It allows the grantor to remove assets from the trust and modify the terms of the trust. You’ll retain control of the assets you place in the trust. Because the assets in the trust remain under your ownership, you will pay taxes accordingly.
How Much Does It Cost to Create a Living Trust?
The cost of a living trust in New York depends on how you go about setting it up. You can do it yourself using a program downloaded from the internet, which could cost less than $100. However, there are risks involved with DIY estate planning, so you’ll need to ensure you do your homework if you choose this option.
If you choose to get an attorney to help you create your trust, the cost will depend on the fees your chosen attorney charges. You could end up paying more than $1,000 to create a living trust. If you decide to hire an attorney to help you, make sure you have a discussion with your attorney upfront so that you know going into the process how much you’ll likely end up paying. It’s also important to note whether the attorney specializes in trusts. Not all estate planning attorneys are trust specialists, so do your research to make sure your lawyer focuses specifically on trusts.
Why Get a Living Trust?
A living trust has the potential to make things significantly easier for your family after you die. This is because any property placed in the trust won’t be subject to probate, a potentially time-consuming legal process through which estates are passed on through wills.
In New York, this is doubly important. The state does not use the Uniform Probate Code, a system that can significantly cut down on the length of the probate process. For this reason, a living trust has the potential to make matters significantly easier for your family after your death.
A living trust may also be a good idea if you want to leave property to a minor child. With a living trust, you can leave the property or assets in the care of a trustee until the child reaches legal age. Another instance in which a living trust can be particularly helpful is in the event you become incapacitated. In that instance, a living trust would allow you to avoid conservatorship, as you’ve already appointed a trustee to manage your affairs.
Who Should Get a Living Trust?
A living trust is not only for the wealthy. However, if you have an especially large or complex estate it might make more sense for you. In New York, though, the lack of the Uniform Probate Code may mean that even a relatively small estate can benefit from a living trust.
While there are a number of upsides to living trusts, there are some drawbacks. A living trust is generally more expensive and more complicated to set up than a will. Trusts also give families more time to contest than a will does, which may slow down the estate process after your death.
Living Trusts vs. Wills
Even if you do decide to create a living trust, you’ll still need a will. Wills can provide direction on any property that is not included in your trust. Moreover, wills have capabilities that living trusts do not, such as:
- Naming an executor
- Establishing guardianship for children
- Selecting managers for children’s property
- Providing instructions for paying taxes and debts
This chart compares and contrasts the abilities of a living trust versus a will:
|Living Trusts vs. Wills|
|Names a property beneficiary||Yes||Yes|
|Allows revisions to be made||Depends on type||Yes|
|Avoids probate court||Yes||No|
|Requires a notary||Yes||No|
|Names guardians for children||No||Yes|
|Names an executor||No||Yes|
Living Trusts and Taxes
A living trust is unlikely to have a big impact on your taxes. It still important, though, to know the New York estate tax and the New York inheritance tax when you are planning your estate.
There is no inheritance tax in New York, meaning that your beneficiaries won’t have to pay a tax once they receive the assets you’ve passed along. There is an estate tax in New York though. However, the New York estate tax only applies to estates that are worth more than $6.11 million. If the estate is worth less than $6,110,000, the estate tax is only levied on the value of the estate that exceeds $6.11 million. If an estate is worth more than $6,110,000, the tax will be levied on the full value of the estate.
There is also a federal estate tax that applies to estates that are worth $12.06 million or more ($24.12 million for couples).
It takes some amount of planning to create a living trust, but it isn’t terribly hard. You can certainly set up a living trust by yourself. However, it might be easier to get the help of an attorney, especially if your estate is large or complex. In New York especially it might be a smart move to create a living trust, even if you have a smaller estate. The Empire State does not use the Uniform Probate Code, which means that getting a living trust can significantly cut down on the time your loved ones spend in probate after your death.
Estate Planning Tips
- Whether you are setting up a living trust or looking for help with estate planning in general, you might benefit from the advice of a financial advisor. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- The most important part of estate planning is right in the name: having a plan. No matter what the plan is, it’s key to have one in place for your family to follow.
- When creating a financial plan, it’s crucial to take inventory of your assets. This includes the money you’ll receive in retirement from your 401(k) plan and Social Security. SmartAsset’s Social Security calculator can help you estimate how much you’ll be getting form the government in retirement.
Photo credit: ©iStock.com/gradyreese, ©iStock.com/ablokhin, SmartAsset.com