The Only Three Types of Trusts You Really Need in Estate Planning

Estate planning can seem complex, with many moving pieces to coordinate. But at its core, it’s about making sure your assets and wishes are handled how you intend when you pass away.

As an estate planning-focused law firm, we frequently discuss how trusts can help New York residents achieve common goals like avoiding probate court, minimizing estate taxes, protecting assets long-term, and caring for a spouse or child with special needs.

But with so many types of trusts out there, how do you know what’s right for your unique situation?

In this guide, we’ll walk through the three types of trusts used in estate planning so you can better understand the tools at your disposal.

Revocable Living Trusts Are The Foundation for Many

For New York residents, the revocable living trust often serves as the foundation for an estate plan. Unlike a will that needs to go through probate when you pass, assets in a properly created and funded living trust can be transferred directly to beneficiaries without court intervention.

This helps ensure your estate is settled quickly, privately, and according to your wishes. It also allows you to consolidate your assets under single management during your life.

And with the flexibility to modify aspects of the trust down the road if family circumstances or laws change, many see revocable living trusts as offering the best of both worlds. No wonder it’s among the most widely used trust options.

At our firm, we often say that relying solely on a will is like trying to paddle a canoe that’s full of holes. It creates unnecessary challenges for your loved ones and risks losing wealth to taxes and legal fees. That’s why we emphasize revocable trusts as the bedrock for most estate plans.

Irrevocable Trusts Reduce Tax and Shield Assets

In some situations, estate plans incorporate irrevocable trusts as well. As the name implies, these cannot be easily changed or revoked once set up.

But in return, they provide benefits like:

• Estate Tax Minimization: Married couples can establish bypass trusts upon the death of the first spouse to help maximize the use of federal estate tax exemptions, reducing eventual taxes owed.
• Asset Protection: Certain irrevocable trusts allow you to transfer assets while retaining some access to the income they produce. This removes them from your taxable estate and shields them from future creditors.

As you can see, irrevocable trusts trade flexibility for increased security and tax planning advantages. The details vary greatly among specific trust strategies, which is why consultation with an attorney is vital before establishing them.

Common examples include:

• Bypass & Credit Shelter Trusts: Hold assets up to federal/state estate tax exclusion limits when the first spouse dies. Shelters taxes at the second death.
• Charitable Remainder Trusts: Donate assets tax-free with the remainder left to charity on death.
• Charitable Lead Trusts: Income paid to charity while heirs can claim principle later. Reduces the size of taxable estate.

Testamentary Trusts Are Outlined in Your Will

In addition to trusts you establish during life for asset protection and tax benefits, there are also testamentary trusts created after you pass on.

Through your last will and testament, you can direct assets into various trusts with rules tailored around beneficiary needs. For those new to estate planning, this level of customization is often surprising but offers many possibilities.

Specialized Trusts for Minors and Special Needs Beneficiaries

Beyond basic living trusts, other, more specialized trusts allow you to provide for unique beneficiary situations:

Trust Funds for Minors

If young children inherit money/property outright, court intervention is likely required. A minor’s trust lets you appoint a trustee to manage assets on their behalf until a chosen age. Many see this as essential to prevent custody disputes, misuse of funds during childhood, or even incentivize laziness in young adults.

Supplemental Needs Trusts

Those with disabled dependents reliant on needs-based government assistance can use SNTs to provide additional quality-of-life comforts without threatening eligibility for Medicaid, SSI, housing benefits, etc. Since government programs are rarely sufficient on their own, even for essentials like medical equipment and specialized therapies, an SNT lets your gift make a huge difference.

The options go on, but the key takeaway remains: With careful forethought and guidance from an estate planning lawyer, trusts allow you to exercise greater control over assets left to beneficiaries.

Rather than directly inheriting money, the property is placed into a trust where a designated trustee manages it under parameters and instructions you predefine. And while no one likes to dwell on their passing, building the right trusts into your estate plan gives peace of mind that loved ones will be provided for.

Ready to Explore Trusts and Your Options?

We hope this guide gave you a helpful introduction to differentiate the main types of trusts used in estate planning here in New York. While we only scratched the surface of the details, our team at The Browne Firm would be delighted to explore trusts tailored for your unique assets, beneficiaries, and intentions.

We guide many New York families, individuals, and small business owners through this process each year. Our goal is to help ensure your estate plan considers all angles, from taxes to long-term grants for charity. And just as importantly, it reflects what matters most to you rather than some boilerplate forms off the internet.

We offer consultations to review your current plan or lack thereof. This allows us to hear your wishes, explain options around trusts and other estate planning tools in-depth, and suggest a course tailored specifically for you. Many find this hugely valuable as they look to organize their assets and preserve more wealth across generations rather than losing it to unnecessary taxes.

To schedule a consultation or learn more, request one through our online contact form. We have two convenient office locations in Mt. Vernon and Manhattan and look forward to assisting you however we can. Estate planning is rarely simple, but the peace of mind for both you and your heirs makes all the difference.