Estate planning is an important yet overlooked topic for many existing homeowners and first time home buyers in New York, particularly in NYC. While the use of a will is the most commonly used way to plan for the distribution of assets upon death, a living trust can also perform the same function while offering additional benefits such as the avoidance of probate.
The use of a living trust, or a living trust in conjunction with pour over will, can completely eliminate or minimize the time and monetary expenses associated with probate as would be required when exclusively using a will as an estate planning tool.
Consequentially, a living trust is generally regarded as a great probate avoidance mechanism and will substitute. A living trust also provides additional benefits such as greater privacy and additional protection from court challenges as compared to a Last Will and Testament. A living trust is especially helpful if you reside out-of-state, as it can avoid the need for Ancillary Probate proceedings in the states where you own property.
Table of Contents:
What is a will?
What is a living trust?
What is probate?
Advantages of a living trust vs. a will in New York
Drawbacks of a living trust vs. a will in New York
How much does a living trust cost in NY and NYC?
Is a living trust beneficial for out-of-state property ownership?
Title Insurance implications when transferring property into a living trust
Are there any closing costs when transferring NYC real estate into a living trust?
A Will, also known as a Last Will and Testament, is a signed statement which coordinates the distribution of assets after death and appoints an executor to oversee the winding down of one’s estate. A Will may also name a guardian to care for minor children and identify a trustee to manage any property which is left to minors.
A Will in New York must be signed in front of two witnesses, and both witnesses must also sign the Will. It’s customary to prepare a Will, a Living Will as well as a Health Care Proxy as part of a comprehensive estate planning strategy in New York.
A ‘pourover will’ is used in conjunction with a living will to address any assets which aren’t in the trust at the time of death. The pour-over will stipulates that any assets which weren’t transferred into the trust prior to death become part of the living trust and are to be disposed of as instructed by the living trust.
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A living trust, also known as a ‘revocable trust’, is a way of allocating assets to beneficiaries after death while avoiding or minimizing the probate process. Assets such as real estate and bank accounts are transferred into a living trust by the grantor, and the trust documentation names a Trustee as well as Successor Trustee.
The living trust outlines what happens to the property once the grantor or settlor (the person who contributed the property) passes away. Because the assets have been transferred into the trust, they are not considered to be part of a decedent’s estate and are not subject to probate.
The grantor typically serves as the Trustee, and this means that the grantor maintains full control of the trust and the assets contained therein during her or his lifetime. Consequently, a living trust may be amended or revoked at any time while the grantor is still alive. Any income or tax obligations arising from the assets transferred into the trust remain the responsibility of the grantor.
Upon death of the grantor, the Successor Trustee is tasked with managing the assets, paying bills and making distributions as outlined in the Trust documentation while winding down the estate.
Unlike a will, a living trust is a private document which never becomes public. Therefore, it offers additional privacy compared to a Last Will and Testament which must be submitted publicly for probate and becomes a matter of public record. A living trust also offers additional protection from court challenges compared to a will.
An irrevocable trust, on the other hand, may not be modified without the permission of the beneficiaries.
Probate in New York is a legal process through which a Surrogate’s Court recognizes a deceased’s Last Will and Testament and authorizes the named Executor to manage and unwind the estate through naming “letters testamentary.” A will submitted for probate becomes a matter of public record.
The Executor is tasked with gathering assets, paying obligations of the deceased, addressing any pending litigation, paying taxes and selling and distributing assets in line with the instructions provided in the will, among other responsibilities.
Probate is a costly and time consuming process even if the decedent has a will, as there are court filing fees, attorney fees and other potential expenses such as court challenges and the costs associated with tracking down beneficiaries.
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The primary advantage and benefit of a living trust versus a will is that a living trust avoids probate. Probate is a public, time consuming and costly process through which a decedent’s Last Will and Testament is recognized through the courts and the Executor becomes authorized to manage and unwind the estate.
While probate cannot be avoided if there are assets which were not transferred into a living trust prior to death, the time and costs associated with probate can be minimized through the combination of a living trust and a pourover will. A pourover will stipulates that any assets which weren’t transferred into the trust prior to death become part of the living trust and are to be disposed of as instructed by the living trust.
“A will needs to be probated to gain its ‘power’,” according to Neel Shah, estate planning attorney at Shah & Associates and financial adviser/owner at Beacon Wealth Solutions in Monroe, NJ.
“A living trust is valid immediately upon signing. As such, a living trust can provide numerous benefits in the event of an incapacity or disability, which cannot be accomplished in a will. Although you may be able to give some powers under a power of attorney, they are limited to a delegation of power with very little direction to the agent in most cases,” Shah says.
In addition to avoiding or minimizing probate, a living trust also provides additional privacy and protection from court challenges compared to a traditional will.
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The primary disadvantage of a living trust versus a will is the additional time, effort and cost associated with creating a trust and transferring assets such as real estate into the trust itself.
“While most institutions do not charge to transfer liquid assets, the administrative process can be tedious,” according to Neel Shah, Esq.
“Deed transfers may also be a cost in the short-term. But it is a labor of love. One should recognize that someone is going to have to file a deed at some point in the future anyway. You may as well do it on your terms,” he says.
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The typical cost associated with setting up a living trust in New York is $3,000 to $6,000.
Individuals typically prepare a living trust as one component of an overall estate planning process which may also include additional documents such as a pour-over will, health care directives, Powers of Attorney and asset integration guidance.
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Yes. If a deceased individual lived out-of-state but owned property under their personal name in New York, an Ancillary Probate proceeding in the Surrogate’s Court in New York is required in order to sell the property. Having all property in a living trust avoids the need for Probate in the decedent’s state of residence as well as Ancillary Probate proceedings in other states where they owned property.
“Because of the nature of probate, sometimes in-person visits are required. That complicates things for those living outside of New York, with beneficiaries outside of the state or with people they name as trustees outside of the state,” according to Neel Shah, Esq.
“Those with minor children, in particular, should consider a revocable living trust because the potential detriment of having assets frozen during the probate process can be particularly impactful for the minor children,” he says.
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It’s unclear, and the answer depends on the language in the Title Policy. “There’s a bit of a gray area as to whether title insurance needs to be reissued when transferring property into a living trust,” according to Neel Shah, an estate planning attorney at Shah & Associates in Monroe, NJ.
“I always suggest having the property owner reach out to their title company to be sure, but most practitioners will take the position that the revocable living trust is a successor or assignee to the Title Insurance policy. Without getting into too much minutiae, if a bargain and sale deed is used one can argue that certain representations and warranties can be incorporated into the deed which would keep the title company ‘on the hook’,” he says.
Attorney John Moss holds a similar view. “Generally, the existing title policy will carry over from the individual to the trust and will not be invalidated. To be certain of this, however, the transferor should check with either their attorney and/or their title company to confirm,” he says.
