Using Living Trusts As A Will Substitute

  • September 5, 2018


Instead of leaving property to a loved one under your will, clients often create a “living trust” to get the job done. With a living trust, it is easier to change beneficiaries as well as who gets what, when you pass away. With a living trust, changes to your plans can be made more easily, than having to change your will.

Some Background: A “trust” is a legal arrangement where the property is transferred to another (a trustee) to hold, on behalf of himself or someone else, who is referred to as a beneficiary. A trust is governed by a trust “agreement” which lays out how the property will be held, administered and distributed. Trusts can be set up for a variety of reasons.
With a living trust, you are still considered the owner even though you have moved assets into a trust. The person who creates the trust is referred to as a settlor, creator or grantor; each of these terms means the same thing. The trustee holds, manages and distributes assets, to beneficiaries, per the instructions in a trust agreement. With a living trust, you remain the trustee while you’re alive.

Will Substitute: Living trusts are often called “will substitutes” because if the property is owned by the trust, and left to a beneficiary under the trust agreement, you will not need a will to transfer the asset. That said, it’s a good idea to have a will anyway. Why? Just in case you have left property out of the trust by mistake. Typically, what’s known as a “pour over” will is what is used if you have a living trust. The pour over will pour over everything you own at death, to the living trust, to be distributed per instructions in the trust agreement.


Advantages of a Living Trust: Following are the main advantages of creating a living trust during your life:

1. The trust can name a successor trustee so that if you become mentally impaired, while you are alive, that person can take over.

2. Assets held in the trust can be used in the same manner as if they were still in your name. This includes eligibility for STAR and veterans exemptions if you transfer your home into the trust.

3. For assets held in trust, there is a step-up in basis to the date of death value, which often saves capital gains taxes for your heirs.

4. Living trust assets avoid probate. Assets held in a living trust are non-probate assets. If planning is done right, you may be able to save the cost and complications of probate.

5. Assets held in a living trust are not available for Medicaid recovery. This means that if you receive Medicaid prior to your passing, Medicaid cannot be paid back from assets in the trust. Why?
Because under present law, Medicaid cannot seek recovery against non-probate assets, which includes all assets held in trust. This is a good feature of NY law but is not true in all states. For now, Medicaid can only seek reimbursement (after you die) from probate assets.

A trust can serve many purposes, and a living trust is no exception. If you want to learn more about these or other types of trusts, please contact Susan G. Parker, Esq., PC at (914) 923-1600.