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Get the tax guidance you need when planning your Trust in New York 

trust planning

There’s a saying that there are only two sure things in life: death and taxes. This is true, but not even death can get you out of taxes, in more ways than one!


It may be no fun to talk about, but planning for your transition is an important part of your financial well-being, especially if you have descendants.


Trust and estate planning go hand in hand; careful planning can minimize tax both while you’re living and after you pass.

A simple trust definition could be a financial vehicle that someone places their assets into in order to minimize estate taxes; these assets are controlled by a trustee that distributes these assets to the beneficiaries of the financial vehicle. 


However, there are various types of trusts, including both irrevocable and revocable trusts.


There are even finer details/types of trust, but for this purpose, we’ll just focus on the two general terms and how they could impact your income or estate taxes.

Revocable trusts, also known as living trusts, are trusts that allow the grantor (the person that places the assets in the trust) to make changes to the trust after it has been executed.


These trusts offer the flexibility to make changes, but there is a downside to this. Because you are able to make changes to the trust, this implies that you are still the “owner” of the assets, and as such, are still subject to any taxes associated with the estate during your lifetime. 


Once you die, this type of trust is often set up to become an irrevocable trust for estate tax purposes.

Irrevocable trusts, on the other hand, are exactly as they sound: once you execute the trust, you cannot make any changes to the trust document. 


These are beneficial due to the fact that once you place assets in an irrevocable trust and it has been executed, these assets are removed from your estate and generally excluded for estate tax purposes.


Another benefit is the fact that since you relinquish the rights of ownership to these assets (the ownership transfers to the trust), you no longer are responsible for any tax associated with the income generated from these assets.

Wait, what is a trust fund and where does it play into all of this?


We’ve all heard the “trust fund baby” stories; the trust fund is just a colloquialism that describes a trust.  The trust fund baby is the beneficiary of the trust, receiving the benefits after the grantor has passed (sometimes even before then!).


What may not be known, however, is that the beneficiary pays tax on any income derived and distributed from trusts (gains, not returned principal).


This added wrinkle shows that there may be some planning opportunities available to trust beneficiaries; our experts would be happy to help you with this type of planning.

At this point, you might be wondering “what’s the deal, I thought after I die, my assets are disbursed according to my will?”


This is a great thought that leads to an opportunity for discussing the difference between a will versus a trust.

A will is a written legal document that determines how and to whom your assets are distributed. However, a will takes effect after you die, which could be perceived as a negative.


Another downside is the fact that even though you have a will, your assets will still go through what is known as probate, where a court decides whether the will is valid and if it should be executed. This adds time to the process, creating unneeded stress for your loved ones.


The court process is also public information, meaning anyone can see and access your will. In the interest of privacy, this may not be the best situation. There is one major benefit to having a will, especially if you have minor children.


A will establishes a legal guardian should both parents die; if both parents die and lack a will, the children are subject to the court system. 


It’s absolutely essential that these plans are taken care of; it’s never fun to have conversations like these, but they’re necessary for the sake of the children, should anything happen. It is always better to have some plan rather than no plan at all.

In comparison to this, a trust can be utilized before your death, with you fully stipulating how you want your assets disbursed.


As mentioned, depending on the kind of trust you establish, it’s possible to make changes to the trust should you have a change of heart.


A huge positive compared to the will process is that once you die, your assets that were placed in the trust avoid probate and are accessible immediately according to the trust document.


Similarly, the trust process is not public record, allowing you to keep some privacy after you pass.

There are, however, benefits to having both a will and a trust.


A will allows you to stipulate funeral plans or distribute heirlooms or smaller assets that may not be included in your trust. It’s an absolute necessity if you have minor children.


As mentioned, there are various reasons why a trust should be used, but you are able to use both, should you so choose.


This is a solid planning strategy and allows you to take advantage of the advantages of each respective option without having the associated negative consequences of only choosing one option.

Savvy & Suite would love to discuss your options when it comes to trust planning.


This is not solely for tax reasons, although we are often centered on the tax implications of one choice or another; instead, we take our clients’ matters seriously and strive to keep their best interests in mind.


Their interests after death are important to us, which is why we are proud to offer planning services that allow for smooth transitions and minimal tax exposure.

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