Estate planning is a crucial step in securing your legacy and ensuring that your assets are distributed according to your wishes after you pass away. In New York, two common estate planning tools are wills and trusts. Each has its advantages and disadvantages, making it essential to understand their differences to make an informed decision. A financial advisor with estate planning expertise can help you navigate this important process and determine whether you should establish a trust.
What Is a Will?
A last will and testament, commonly referred to as a “will,” is a legal document that plays a crucial role in estate planning. It outlines how a person’s assets and properties should be distributed after their death, and it can also specify other important matters, such as guardianship for minor children and funeral arrangements.
When you create a will, you’re tasked with naming an executor – the person responsible for carrying out the instructions in the will. The executor manages your estate, pays any outstanding debts and distributes assets as specified. The beneficiaries are the individuals or entities who will inherit your assets. Beneficiaries can include family members, friends, charities or any other party you choose.
The primary purpose of a will is to ensure that your assets are distributed according to your wishes after you pass away. Without a valid will, New York laws – called intestacy laws – will determine how your assets are distributed, which may not align with your preferences.
For example, in the state of New York, the surviving spouse inherits the entire estate if the person who died did not have a will and did not have children. In the event that there is both a surviving spouse and surviving children, the spouse inherits the first $50,000 of the estate plus half of what remains. The children then inherit the rest of the decedent’s estate.
Pros and Cons of a Will in New York
Having a will not only helps you avoid intestacy laws dictating how your estate is distributed. Here’s a look at some of the primary benefits of having a will in the Empire State:
- Simplicity: Creating a will is relatively straightforward and cost-effective compared to setting up a trust. Wills allow you to specify how your assets, such as property, money and personal belongings, should be distributed among your beneficiaries. This can help prevent disputes among family members and ensure your assets go to the individuals or organizations you choose.
- Executor appointment: You can appoint an executor in your will to handle the distribution of your assets, ensuring your wishes are carried out.
- Guardianship: If you have minor children, you can designate a guardian for them in your will, providing peace of mind about their future.
- Funeral and burial wishes: You can use a will to express your preferences regarding your funeral, burial or cremation.
However, wills are somewhat limited compared to trusts. Here’s a look at some of the main drawbacks and limitations of wills in New York:
- Probate: Wills go through the probate process, which can be time-consuming and costly in the Empire State. This process plays out in the New York Surrogate’s Court and is a matter of public record.
- Limited privacy: Since wills are filed in New York Surrogate’s Court, they are public records. This means that anyone can access the contents of your will after your passing, potentially leading to privacy concerns.
- Contestability: While a will is a legal document, it can still be contested in court. Family members or other parties may challenge its validity, leading to legal disputes.
What Is a Trust?
A trust is a legal entity that holds and manages assets for the benefit of specific individuals or entities. The person who creates a trust is called the grantor or settlor, while the person responsible for managing a trust’s assets is the trustee.
Like other states, New York typically does not subject trusts to the probate process. As a result, your estate remains private and can be distributed according to your exact wishes – not a timeline determined by the court.
Trusts come in various forms, each serving unique purposes. However, there are two broad categories of trusts: revocable and irrevocable trusts.
- Revocable trusts: Also known as living trusts, revocable trusts allow the grantor to retain control over their assets during their lifetime. The grantor can modify or revoke the trust at any time, making it a flexible option for individuals who want to maintain control and flexibility over their assets.
- Irrevocable trusts: An irrevocable trust, on the other hand, cannot be altered or revoked without the consent of the beneficiaries. Once assets are transferred into an irrevocable trust, they are no longer considered part of the grantor’s estate, offering greater asset protection and potential tax benefits.
Pros and Cons of a Trust in New York
In the state of New York, as in many other states, trusts offer a range of advantages and disadvantages that individuals and families may consider when making important financial decisions. Here are the pros of having a trust in the Empire State:
- Avoiding probate: One of the primary advantages of a trust is that it allows assets to bypass the often lengthy and costly probate process in New York. This means that beneficiaries can potentially receive their inheritances more quickly.
- Privacy: Trusts provide a level of privacy that wills do not. While wills become part of the public record during probate, trusts generally remain private documents. This can be especially valuable for those who prefer to keep their financial affairs confidential.
- Asset protection: Certain trusts, such as irrevocable trusts, can protect assets from creditors and lawsuits. This can be a significant advantage for individuals in professions with higher liability risks or those who want to ensure that their assets are preserved for their beneficiaries.
- Control over distribution: Trusts allow grantors to specify the conditions under which beneficiaries receive their inheritances. This level of control can be useful for individuals who want to ensure that their assets are used responsibly and according to their wishes.
But having a trust in New York does come with some notable drawbacks:
- Complexity and cost: Establishing and managing a trust can be more complex and expensive than creating a simple will. Legal fees and administrative costs can add up, particularly for irrevocable trusts.
- Potential inflexibility: While irrevocable trusts offer asset protection benefits, they also come with the drawback of limited flexibility. Once assets are placed in an irrevocable trust, they generally cannot be removed or changed without the consent of the beneficiaries.
- Management responsibilities: Trustees have fiduciary responsibilities and must manage trust assets prudently. This can be a significant responsibility, and trustees may be held legally accountable for their actions.
When to Create a Trust in New York
One key factor in deciding between a will and a trust in New York is the complexity of your assets. If you have a straightforward estate with few assets and beneficiaries, a will may suffice. However, if your assets include business interests, real estate or investments, a trust can provide more flexibility and control over how these assets are managed and distributed.
As stated earlier, if you value privacy and wish to keep your financial affairs confidential, a trust might be a better option since they do not go through probate. Avoiding probate can allow for a smoother and faster distribution to beneficiaries. This can be particularly advantageous if you have beneficiaries who may need immediate access to funds or assets.
Another critical consideration is planning for potential incapacity. Trusts can be useful for managing assets if you become unable to do so yourself due to illness or injury. With a revocable living trust, for instance, you can appoint a successor trustee who can seamlessly take over the management of your assets without court involvement.
If protecting your assets from creditors or ensuring a structured distribution to beneficiaries is a priority, a trust can offer these benefits. Certain trusts, such as irrevocable trusts, can shield assets from creditors and provide a level of asset protection that a will cannot.
While both wills and trusts can be used for estate tax planning, trusts offer more advanced strategies for reducing estate taxes. If your estate is large and subject to federal or state estate taxes, consulting with an estate planning attorney in New York about trust options may be something you want to consider. After all, estates worth more than $6.58 million in 2023 are subject to the New York estate tax, which can range between 3.06% and 16%. The federal estate tax is applied to estates worth more than $12.92 million in 2023 and $13.61 million in 2024.
Can I Have Both a Will and a Trust in New York?
Yes, it’s possible to have both a will and a trust as part of your estate plan in New York. These legal tools can complement each other, offering you a comprehensive strategy to protect your assets and provide for your loved ones after your passing.
Moreover, having both a will and a trust can offer flexibility. You can use the will to cover any assets that you forgot to place in the trust or those acquired after the trust was established. It can also address matters that a trust cannot, such as guardianship for your children.
Bottom Line
Choosing between a will and a trust in your New York estate planning depends on your individual circumstances and goals. Consider factors like the size of your estate, privacy concerns and the level of control you want over your assets. Estate planning is not one-size-fits-all, so it’s essential to tailor your plan to your specific needs and objectives.
Estate Planning Tips
- If you have a large estate and you’re concerned about estate taxes reducing your beneficiaries’ future inheritances, you can begin to give away assets during your lifetime. Doing so can reduce the size of your estate and potentially help you avoid triggering the estate tax. For example, the IRS allows individuals in 2023 to give away up to $17,000 tax-free ($34,000 for married couples filing jointly) to as many people as they want in a single year. In 2024, that number will increase to $18,000 ($36,000 for married couples filing jointly).
- A financial advisor with estate planning experience can help you navigate the complexities of planning your estate. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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