Revocable Living Trusts in New York

Understanding Revocable Living Trusts

A revocable living trust is created during your lifetime and expressly gives you the ability to revoke or amend it. Under New York law, a lifetime trust is irrevocable unless the trust expressly provides that it is revocable. New York law also establishes requirements for the execution, amendment, and revocation of lifetime trusts.  The person creating the trust is commonly referred to as the grantor or creator. The trustee manages property held in the trust according to its terms, while the beneficiaries are the people or organizations entitled to benefit from the trust. With a typical revocable living trust, the creator may also serve as the initial trustee and beneficiary during life. That arrangement can allow the creator to continue managing and using the trust property much as before while establishing instructions for what happens if the creator becomes incapacitated and what happens to the property after death.

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How a Revocable Living Trust Works

A revocable living trust generally has two important components: The trust agreement establishes the rules governing the trust. Trust funding places appropriate assets under those rules. Creating the document alone is not enough to make every asset you own part of the trust. New York law provides that a lifetime trust is valid as to assets to the extent those assets have actually been transferred to it. For assets capable of registration, such as real estate, stocks, bonds, and bank or brokerage accounts, appropriate changes in ownership or registration may be required.  Depending on the estate plan, assets placed in a revocable trust might include:

• Real estate

• Bank accounts

• Investment accounts

• Certain business interests

• Other property appropriate for trust ownership

Not every asset necessarily belongs in a revocable trust. Retirement accounts, life insurance, jointly owned property, and assets with beneficiary designations require separate consideration because ownership and beneficiary rules may affect how those assets should be coordinated with the trust.

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Common Uses for Revocable Living Trusts

Revocable living trusts can accomplish several estate-planning objectives, but their usefulness depends on the person's assets, family circumstances, and goals.

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Probate Planning

One of the most common reasons for creating a revocable living trust is to allow trust-owned assets to pass without probate.

When the creator dies, property already held in the trust generally remains under the trustee's control and is administered according to the trust agreement rather than passing under the creator's will. That can reduce the amount of property requiring probate. But the distinction between creating a trust and funding a trust is critical. If property remains individually owned at death and has no other method of transfer, the existence of an unfunded or partially funded revocable trust does not automatically keep that property out of probate. Click HERE for more about Probate.

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Incapacity Planning

A revocable living trust can also provide continuity in the management of trust property if the creator becomes unable to manage financial affairs. The trust can establish when and how a successor trustee assumes responsibility and what authority that trustee has over trust assets. This can be particularly useful when the trust owns real estate, investment accounts, or other assets requiring ongoing management. A revocable trust does not necessarily eliminate the need for a power of attorney. A successor trustee generally has authority over property governed by the trust, while an agent under a power of attorney may need to handle financial and legal matters outside the trust. The two documents can therefore perform complementary functions.

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Management of Property After Death

A revocable trust can do more than transfer assets immediately to beneficiaries. The trust can continue after the creator's death and establish rules governing how property is managed and distributed. For example, a trust might provide for property to remain in trust for:

• Minor children

• Young adult beneficiaries

• A surviving spouse

• Beneficiaries who should receive distributions over time

• Family members who need assistance managing assets

• Beneficiaries for whom continuing trust protection is appropriate

The trust can identify successor trustees and establish standards for distributions rather than requiring every beneficiary to receive an inheritance outright immediately after death.

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Privacy and Estate Administration

A will admitted to probate becomes part of a Surrogate's Court proceeding. A revocable living trust generally does not need to be admitted to probate simply for the trustee to continue administering trust property after the creator's death.

That can provide greater privacy regarding the terms governing trust-owned property. However, describing a living trust as completely “private” can be misleading. Trust information may still need to be disclosed in particular circumstances involving beneficiaries, financial institutions, tax authorities, courts, creditors, or other parties. Privacy can be an advantage, but it should not be treated as absolute. You can learn more about Estate Administration on our dedicated page.

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Control and Flexibility During Your Lifetime

A defining feature of a revocable living trust is the control the creator generally retains. Depending on the trust terms, the creator can typically:

• Manage trust property

• Buy and sell trust assets

• Add assets to the trust

• Remove assets from the trust

• Change beneficiaries

• Change successor trustees

• Amend trust provisions

• Revoke the trust

This flexibility distinguishes a revocable trust from many irrevocable trust arrangements. It also explains an important limitation. Because the creator generally retains substantial control over and access to the trust property, transferring an asset to a revocable living trust usually does not mean that the creator has given the asset away for purposes of Medicaid eligibility, creditor protection, or estate taxation. The trust provides a different method of owning and managing property. It does not automatically create legal separation between the creator and the property.

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Revocable Trusts and the Rest of the Estate Plan

A revocable living trust generally should not be viewed as a replacement for every other estate-planning document.

A trust-centered estate plan may still include:

• A will

• Power of attorney

• Health care proxy

• Advance directives

• Beneficiary designations

• Guardianship nominations for minor children

• Retirement-account planning

• Life-insurance planning

A pour-over will is often used alongside a revocable living trust. The will can direct certain property remaining in the creator's probate estate at death into the trust. But that does not mean the pour-over will itself avoids probate. Property passing through the will may still need to go through probate before it becomes part of the trust. Similarly, beneficiary designations and account ownership should be coordinated with the trust rather than assuming the trust automatically controls every asset. A successful trust-based plan therefore depends on coordination, not simply having a signed trust document.

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Revocable Living Trust FAQs

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Does a Revocable Living Trust Avoid Probate in New York?

It can help avoid probate for assets that are properly transferred to the trust during the creator's lifetime.

The trust continues to own those assets after the creator dies, and the successor trustee can administer them according to the trust agreement. But a revocable trust does not automatically avoid probate for assets that were never transferred to it.

New York law specifically provides that a lifetime trust is valid as to assets to the extent those assets have been transferred to the trust.  That makes trust funding an essential part of probate planning.

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Understand more about Probate here.

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What Is the Difference Between a Revocable Trust and a Will?

A will and a revocable living trust operate differently. A will generally directs the disposition of probate property after death and can nominate an executor and guardians for minor children. A revocable living trust can own and manage property during life, provide for management of trust assets during incapacity, and control trust property after death. A will generally becomes effective as a dispositive instrument at death, while a living trust begins operating during the creator's lifetime.

A trust also does not necessarily eliminate the need for a will. Many trust-based estate plans use both documents because they perform different functions.

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Learn more about the difference between Trusts and Wills here.

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Can I Change or Revoke My Revocable Living Trust?

Generally, yes—that is one of the defining features of a revocable trust. The trust agreement should specify the creator's authority and method for amendment or revocation. New York EPTL § 7-1.17 requires an authorized amendment or revocation to be in writing and establishes execution requirements. New York law also permits a revocable lifetime trust to be amended or revoked in certain circumstances by an express direction in the creator's will that specifically refers to the trust or particular provision.  Changes should therefore be made through the legally required process rather than through informal handwritten changes to the trust document.

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Does a Revocable Living Trust Protect Assets From Nursing Home Costs or Medicaid?

Generally, no.

A revocable living trust is not the same as a Medicaid Asset Protection Trust. New York State Department of Health guidance provides that, for Medicaid eligibility purposes, the whole revocable trust is generally treated as the creator's resource when the creator used their assets to establish the trust.  That follows from one of the fundamental characteristics of the arrangement: the creator generally retains access to and control over the property. Someone whose primary objective is long-term-care or Medicaid asset protection may need to consider a substantially different planning strategy.

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Does a Revocable Living Trust Save Estate or Income Taxes?

Creating a revocable living trust does not by itself create estate-tax savings. Because the creator generally retains control over the property, placing assets in a typical revocable trust does not ordinarily remove those assets from the creator's taxable estate merely because ownership has been placed in trust. A revocable living trust is also generally treated as a grantor trust for federal income-tax purposes while the creator is living. The IRS explains that the income, deductions, and other tax items of a grantor trust are generally treated as belonging directly to the grantor.  Tax treatment can change after the creator's death, and specialized tax planning may require different trust structures. The principal reasons for using a revocable living trust are therefore usually estate management, incapacity planning, probate planning, and control over future distributions, rather than obtaining an automatic tax reduction.

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Learn more about Estate Tax Planning here.

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Sources & Legal References

New York Estates, Powers and Trusts Law § 7-1.14 — Who May Make a Lifetime Trust

https://www.nysenate.gov/legislation/laws/EPT/7-1.14

New York Estates, Powers and Trusts Law § 7-1.16 — Revocation of Lifetime Trust by Will

https://www.nysenate.gov/legislation/laws/EPT/7-1.16

New York Estates, Powers and Trusts Law § 7-1.17 — Execution, Amendment and Revocation of Lifetime Trusts

https://www.nysenate.gov/legislation/laws/EPT/7-1.17

New York Estates, Powers and Trusts Law § 7-1.18 — Funding of Lifetime Trust

https://www.nysenate.gov/legislation/laws/EPT/7-1.18

New York State Department of Health — Trusts Information and Medicaid Eligibility

https://www.health.ny.gov/health_care/medicaid/trusts.htm

Internal Revenue Service — Instructions for Form 1041, U.S. Income Tax Return for Estates and Trusts

https://www.irs.gov/instructions/i1041