What Can You Put in a Trust?

A trust is an essential part of estate planning for many people, not only high-wealth individuals. If any of the following pertain to you, you may benefit from having your Long Island trust attorney create a trust for you as part of your estate:

• You want to avoid probate. In most cases, wills go through probate, but trusts do not.
• You want to reduce taxes. If you’ve properly created an irrevocable trust, you can shelter your estate taxes. 
• You want to restrict your beneficiaries’ inheritance. For example, your trust structure can shield the principal while allowing your beneficiaries a limited amount of money for education, healthcare, and other specific things you identify.

There are other sound reasons to create a trust, and your trust attorney can explain them.

How Do You Create a Trust?

A trust is a legal instrument that allows a trustee to hold and manage assets for a beneficiary’s benefit. The person who creates the trust is called the grantor. The trust document sets out how the trust will be managed.

Immediate tasks in creating a trust include naming a trustee and beneficiaries. A trustee manages your assets according to your instructions, files taxes, and makes distributions to your beneficiaries. It is a fiduciary role, but also a personal one. Your trustee should be someone you trust to carry out your wishes. Beneficiaries are the people who will inherit your assets. They can be family members, friends, or even institutions or associations. Primary beneficiaries are the first tier of people who will inherit. Contingent beneficiaries are your backup choices. They inherit only if your primary beneficiaries are dead or have declined the inheritance.

Funding the trust is the next step. Funding means transferring your assets to the trust. Without this step, the trust can’t manage or distribute your assets. If you don’t fund your trust, your assets may end up in probate, something that many people want to avoid when they set up a trust. Also, your wishes may not be carried out properly if you don’t fund your trust. Finally, your heirs and loved ones could face delays and additional legal complications if the trust isn’t properly funded.

What Can You Put In Your Trust

Assets commonly funded into the trust include:

• Bank accounts
• Real estate
• Business Interests 
• Stocks
• Personal valuables such as artwork, jewelry, and heirlooms

Each asset has its own transfer process. For example, financial accounts need to be retitled or list the trust as a beneficiary. Real estate must be retitled and a new deed recorded in the name of the trust. 

People sometimes place unusual or non-traditional items into a trust, such as exotic and pampered pets. The New York hotel queen Leona Helmsley left $12 million to her Maltese, Trouble. High-value collections of artwork, stamps, coins, and rugs can be put into trust. In the digital realm, you can also place cryptocurrency, copyrights, and royalties in trusts.

Exotic vehicles, such as high-value or vintage antique cars, may be placed in a trust, but doing so may complicate your auto premium. 

The Difference Between Irrevocable and Revocable Trusts

Understanding the difference between an irrevocable and revocable trust matters. The main difference is your ability to change the trust once it’s created. The grantor can modify a revocable trust, while an irrevocable trust is much harder to change. Both types of trust can still protect your assets.

A revocable trust, also known as a living trust, designates the assets you want to leave to a beneficiary and identifies how these assets will be distributed. A key feature of a revocable trust is that you can change its terms after it is created. By contrast, an irrevocable trust is difficult to change or amend. Other distinctions between a revocable and irrevocable trust include tax benefits and privacy issues. 

Trusts are often used to transfer assets to ensure that the person creating the trust is eligible for valuable benefits under Medicaid law. These so-called “Medicaid Trusts” are meant to overcome Medicaid’s income restrictions. By creating an irrevocable Medicaid Trust, a person whose income exceeds the income and asset limits can become eligible by transferring assets to a trust. The grantor and no one else can alter the trust. People typically transfer large assets, such as the family home, into the trust so they do not count against them for Medicaid eligibility. The trust can be structured to allow the grantor to live in the house, preserving property tax exemptions.  

Here are two commonly used trusts but there are many more:  

• Special Needs Trusts – Special Needs Trusts provide for the needs, comfort, and happiness of a person with physical, cognitive, or emotional disabilities. This type of trust can provide for the beneficiary’s education, health, and other needs. This specialized trust can also be established for the grantor’s possible future disability.
• Charitable Trust – A Charitable Trust is an irrevocable trust organized for charitable purposes. In the United States, people often set up charitable trusts in order to leave assets to a charitable organization for both philanthropic purposes and tax benefits. 

Contact Davidow, Davidow, Siegel & Stern

At Davidow, Davidow, Siegel & Stern, we have many years of experience counseling clients on estate planning and the best ways to protect your assets, reduce your tax liability, and care for your loved ones. Trusts are an important part of our work, and we can help you determine which type of trust best fits your financial and family situation. Whether you need a Medicaid trust, a special needs trust, or a more straightforward revocable or irrevocable trust, we can advise you on the best path forward. Contact us today to see how we can help you. 

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