krooks0326

BY BERNARD A. KROOKS, CERTIFIED ELDER LAW ATTORNEY

SPECIAL GUEST CONTRIBUTOR: AMY C. O’HARA, CERTIFIED ELDER LAW ATTORNEY

When people think about estate planning, they often think first of a will. While a will is an important document, it is only one of many tools available to help people plan for the future. Another tool that is frequently misunderstood or overlooked is a trust. Trusts are not reserved for the wealthy, nor are they inherently complicated. In fact, for many families, a trust can be one of the most effective and flexible ways to manage and protect assets during life and after death.

At its most basic level, a trust is a legal arrangement that allows property to be held and managed for the benefit of someone else. When a trust is created, assets are transferred into the trust and are no longer owned outright by an individual. Instead, the trust becomes the owner of those assets, and they are managed according to the written instructions set forth in the trust agreement. Those instructions determine how the assets are invested, used, and eventually distributed.

The person who creates the trust is commonly referred to as the grantor, settlor, creator, or trustor. This is the individual who decides which assets will be placed into the trust, who will benefit from the trust, who will manage the trust, and under what circumstances distributions may be made. A trust may be created during a person’s lifetime or upon death, and it can be customized to reflect the grantor’s specific family situation, financial goals, and long-term concerns.

Every trust has at least one beneficiary. The beneficiary is the person or organization for whose benefit the trust exists. Beneficiaries may include children, grandchildren, spouses, individuals with disabilities, or charitable organizations. Depending on the terms of the trust, a beneficiary may be entitled to receive income, principal, or both. In some trusts, distributions are required at certain times or ages, while in others, distributions are left to the discretion of the trustee to ensure that funds are used appropriately.

The trustee is the individual or institution responsible for managing the trust. The trustee’s role is fiduciary in nature, meaning the trustee is legally obligated to act in the best interests of the beneficiaries and in accordance with the terms of the trust document. Trustees are responsible for managing investments, paying expenses, maintaining records, filing required tax returns, and making distributions. A trustee may be a family member, a trusted friend, a professional advisor, or a corporate trustee such as a bank or trust company. With some trusts, a person creating a trust serves as the initial trustee and names successor trustees to step in if they can no longer serve.

Trusts also have tax and reporting considerations that vary depending on the type of trust created. Some trusts use the grantor’s Social Security Number and do not require separate income tax filings during the grantor’s lifetime, while others require their own tax identification number and annual tax returns. Depending on the structure of the trust, income may be taxed to the trust, the grantor, or the beneficiaries. While these rules can seem complex, proper planning ensures that reporting requirements are met and that tax consequences are understood and managed.

There are many different types of trusts, each designed to serve a particular purpose. Some trusts are revocable and allow the grantor to retain control and make changes during their lifetime. Others are irrevocable and are commonly used for tax planning, asset protection, Medicaid planning, or planning for a loved one with special needs. Trusts may be designed to support a surviving spouse, preserve assets for children, or provide long-term oversight for beneficiaries who may not be ready or able to manage assets outright.

Trusts are governed largely by state law, and the rules can vary significantly from one state to another. State law determines how a trust must be created, what language is required for certain types of trusts, how trustees may act, and how trusts are taxed and administered. A trust that is not properly drafted may not function as intended or may even be invalid. For that reason, trusts should always be prepared and reviewed with careful attention to applicable state law to ensure they are properly established, enforceable, and aligned with the grantor’s goals.

Despite their usefulness, trusts are often overlooked because they are perceived as unnecessary, expensive, or overly complex. In reality, trusts can address issues that a will alone cannot, such as avoiding probate, maintaining privacy, planning for incapacity, protecting beneficiaries from creditors, or ensuring that assets are used over time rather than distributed all at once. 

In the end, a trust is not about making an estate plan complicated. It is about creating a plan that reflects your wishes, protects your loved ones, and provides clarity and stability for the future. For many individuals and families, a trust is not just a helpful addition to an estate plan but rather it is an essential one.

Bernard A. Krooks, Esq., is a founding partner of Littman Krooks LLP. He was named 2021 “Lawyer of the Year” by Best Lawyers in America® for excellence in Elder Law and has been honored as one of the “Best Lawyers” in America since 2008. He was elected to the Estate Planning Hall of Fame by the National Association of Estate Planners & Councils (NAEPC). Krooks is past Chair of the Elder Law Committee of the American College of Trust and Estate Counsel (ACTEC). Mr. Krooks may be reached at (914-684-2100) or by visiting the firm’s website at www.littmankrooks.com.