Why Do You Need To Have A Trust

What if you do not have a Trust?

A: While you are Alive.

Any assets in your name are at the risk of creditors.

Assets in your name may disqualify you or your children from scholarships, subsidized housing, medical or any other governmental benefits
If you need home care or nursing home care any assets you have in your name in excess of $4,000 will prevent you from becoming eligible for Medicaid. If you accumulate significant assets in your name in excess of $1 million this could increase the potential inheritance tax for your beneficiaries.

B: If you Die

If you die with any assets in your name, your beneficiaries will have to go to court to probate a Will or, if you have no Will, to go to court for approval of the appointment of an administrator. Attorneys could charge your beneficiaries between 5% to 10% of the value of your assets as a fee to probate the Will or appoint an administrator.
If you die with more than a million dollars of assets there will be a 12% New York State Inheritance tax. If you die with more than two million dollars of assets there will be an additional 45% federal inheritance tax.

What is a Trust?

A Trust is a separate entity that can hold your cash, real estate, stocks or other assets under a separate name and a separate tax identification number, other than your own social security number. You have an opportunity to control the assets by acting as trustee, without the assets being in your name. As a result, without any loss of control of your assets, when you die, the assets can pass directly to your heirs without the expense of going to court to probate a will or appoint an administrator and without any inheritance tax.
While you are alive, the assets will not negatively affect your eligibility for Medicaid or other benefits that would not be available if you had assets in your name, rather than in the name of a Trust. If you are sued for any reason or creditors are seeking your assets, the assets that are in the Trust are fully protected from creditors. If your children or grandchildren are applying for scholarships or other benefits they will not be adversely affected by the trust.

How Is a Trust Created?

A document is written that sets froth the rules of the Trust. To establish a Trust the following information is necessary:

Trust Name: Any name can be selected; e.g. XYZ Family Trust.

Settlor: This is the person that is listed as having started the Trust. The Settlor signs his name as having started the Trust and then has nothing to do with the Trust thereafter.

Trustee: This is the person or persons who control the Trust. The Trustee makes all the investment decisions as to where the trust monies or other assets should be invested. The Trustee also decides when and how much of the Trust assets should be distributed to various family members or charities that may be named as beneficiaries.

Successor Trustee: If the Trustee dies or becomes disabled, the Successor Trustee takes over and the trust continues.

Beneficiaries: These are the group of persons, usually family members, such as children, grandchildren and or their spouses, to whom the Trustee can distribute income and or principal of the Trust. An additional choice of beneficiary, for income tax saving purposes, can be charitable organizations.

How Is a Trust Taxed?

The Trust is not taxed as long as its taxable income is distributed to beneficiaries or charity. The beneficiaries are then responsible for the tax. The Trustee can choose to distribute the Trust income to any beneficiary who is in the lowest tax bracket and/or will not have his scholarship or government benefits affected by the receipt of such income. Alternatively the Trustee can give the Trust income to charity and avoid any tax on the income distributed to charity.

How is the Trust Charitable Deduction Different than an Individual’s Charitable Deduction?

An individual can only give half of his income to charity and must give the income to the charity in the same year that it is earned. A Trust, on the other hand, can give 100% of its income to charity and can give charity even in the year following the year that the trust income was earned and thus avoid income tax on 100% of its income.

What Assets Should Be In a Trust?

Life Insurance is subject to inheritance tax if it is owned by the insured and as much as 56% of the life insurance proceeds could be lost.
A home should be owned by a trust for asset protection and inheritance tax purposes, and to qualify you or family members for Medicaid or other benefits.
Cash, Stocks and real estate should not be in your name where they can be reached by creditors, are subject to inheritance tax if they are owned by you upon your death, and will be forfeited if you need to qualify for Medicaid to pay for home care or nursing home.

Who Should Have a Trust?

Anyone who worked hard to accumulate assets and wants to preserve them for the benefit of his family must protect his assets in a Trust.