New York residents often include trusts in their estate plans to avoid the lengthy and sometimes costly probate process. When assets are not placed into trusts, they cannot be distributed to beneficiaries after an individual dies until a probate court has validated the last will and testament and verified that the estate’s creditors will be paid. This can take several months or longer. Creating a trust can avoid the probate process because the assets they contain are no longer owned by the grantor’s estate.
Revocable and Irrevocable trusts
When trusts are created to avoid the probate process, they can be either revocable or irrevocable. Revocable trusts are popular because they are easy to modify, but they have some disadvantages. The assets placed into a revocable trust are owned by the trust, but they are still controlled by the grantor because the provisions of the trust can be changed at any time. This means that assets placed into revocable trusts are not protected from creditors and do not reduce estate taxes.
Conversely, Irrevocable trusts can shield assets from creditors and reduce estate tax liabilities, but they cannot be changed.
Pour-over Wills
Assets placed into trusts can be distributed without first going through the probate process. This is why combining trusts with pour-over wills is a common estate planning strategy. Drafting a pour-over will ensures that all of a decedent’s assets are placed in a revocable or irrevocable trust when they die. A pour-over will must be probated just like a regular will, but the process is usually completed fairly quickly because the trust is the only beneficiary.
Avoiding estate planning mistakes
Creating a revocable or irrevocable trust can help avoid the probate process because the assets placed into a trust are no longer owned by the grantor’s estate, and drafting a pour-over will ensures that any remaining assets are transferred into trust after the grantor passes away.
However, trusts and pour over wills must be drafted carefully as simple mistakes can strip them of their benefits.
