One of the most common estate planning tools is called a “trust.” A trust is a type of property right held by one person typically for the benefit of another person.
There are many uses for trusts, such as minimizing tax liability, shielding assets from creditors, and helping disabled individuals receive government benefits. In addition to the various uses for trusts, there are differing rules regarding when a trust can be changed or modified.
Modification rules for 7 types of trusts
Here are the modification rules for some popular types of trusts, according to FindLaw:
- Living trusts: Also known as “revocable trusts,” are created when the trustmaker is still alive and can be changed or revoked. These typically change into an “irrevocable trust” when the trustmaker dies.
- Irrevocable trusts: These types of trusts cannot be changed or revoked after they are created. An irrevocable trust will also retain all of the property that is transferred to it.
- Asset protection trusts: Although not required, these trusts are typically structured as irrevocable trusts for a term of years to shield assets from creditors.
- Implied trust: Also known as “protective trusts,” are established by courts under some factual circumstances. The lack of a formal trust makes these arrangements flexible prior to a court determination.
- Special needs trusts: These types of trusts are generally permissible under Social Security rules only when the disabled beneficiary cannot change or revoke the trust.
- Spendthrift trust: Similar to a special needs trust, a spendthrift trust doesn’t allow its beneficiary to modify the trust’s assets. In exchange, the trust’s assets are shielded from the creditors of the beneficiary until the property is distributed to the beneficiary.
- Totten trusts: These trusts follow the same rules of living trusts and can be changed or revoked by the trustmaker.
Why legal representation matters
An experienced estate planning attorney will be able to determine which type of trust is most appropriate for your particular circumstances. Failure to establish the right type of trust may undermine your estate planning and asset protection goals, which is why it is important to consult with a local and experienced estate planning lawyer before setting up a trust in New York.