Trusts are an essential estate planning tool in New York and around the country. They can provide benefits such as tax savings, asset protection and significant flexibility in managing your finances after you die or become incapacitated.
As you consider different options, you must understand the key differences between trusts and the benefits they offer. Knowing the main types of trusts, which fall into a few broad categories, can help you get started.
Irrevocable trust
With one qualification, you will have the most significant asset protection and tax benefits with a revocable trust. Once you transfer your assets, you no longer have ownership. The trust becomes the legal owner of your assets, and you can benefit from this feature if you want to minimize your taxes. Since you no longer own the assets, this trust also makes sense if you have concerns about protecting the assets from creditors, divorce or other legal action.
Revocable trust
These trusts allow you to retain control of your assets, and you can add or remove assets from a revocable trust while you are alive and capable. Control of the trust can transfer to someone else if you become incapacitated or upon your death. You still own your assets even after you move them into the trust.
Special needs trust
If you have a special-needs child or another individual for whom you want to provide ongoing financial support, a special needs trust serves that purpose. Due to the trust structure, the beneficiary can receive them without disrupting their qualifying status for government benefits.
Testamentary trust
You create this trust in your will; it does not take effect until you pass away. While it does not offer any benefits while you are alive, a testamentary trust allows you to specify when your beneficiaries will receive your assets and the amount. You might choose this type of trust to avoid the cost and complexity of setting up and managing a trust while alive.
Charitable trust
You can leave a lasting legacy by setting up a charitable trust to support causes that you care about. Charitable trusts allow you to maximize your charitable giving by providing significant tax benefits.
Trusts can provide many ways to manage and distribute your assets to benefit your estate and beneficiaries. Choosing a suitable trust for your needs can enhance your financial security and peace of mind.
