2019 Best Estate Planning Trusts in Florida and NY

The use of different types of Trusts is an important tool in legal estate planning law, one that allows you to look out for the needs of your loved ones and to protect the assets you have worked so hard to accumulate.

While a trust may seem like a tool only for the wealthy, it can in fact be useful in a variety of situations.

A trust can be a powerful tool for integrating tax planning into your estate plan to efficiently transfer wealth to your heirs.

By passing ownership of tax-advantaged assets, like life insurance policies, annuities or IRAs, to a trust with designated beneficiaries, the assets can continue to grow tax-deferred or tax-free (depending on the account), for many additional years.

Can Trusts Protect My Assets?

Although there was a time when trusts were used almost exclusively by wealthy families to shelter and protect the family fortune, trusts are now commonly found in the estate plan of the average person.

In fact, trusts have evolved to the point where a trust can help with almost any estate planning goal, including asset protection.  The key, however, is to know which type of trust you need.

Whether you’re looking to avoid probate, limit possible estate taxes or assume greater control over how your estate is distributed after you pass, there a number of benefits that adding a trust to your estate plan can provide you and your loved ones.

Since there are a number of different types of trusts, one of the biggest challenges is knowing how each type differs, what goals a particular trust can help you accomplish and whether you even need a trust in your estate plan. To help you get started on understanding the options available, here’s an overview the three primary classes of trusts.

Revocable Trusts

A revocable trust (also known as a living trust) is used to avoid having your estate subject to probate—the legal process of distributing your estate. Probate can be a lengthy, expensive and public process, making it a suboptimal route for your heirs when administering your estate.

Utilizing a revocable trust can be especially effective if you own property in multiple states. For instance, if you own a home here in Iowa and have a cabin in northern Minnesota, you may be subject to probate in both states when you pass. However, if those two properties are owned inside of a revocable trust, you’ll likely be able to avoid probate entirely, thus making the process of administering your estate quicker and less costly.

Irrevocable Trusts

Contrary to revocable trusts, assets in an irrevocable trust can’t be removed or amended after they’ve been placed in the trust. Since you’ve relinquished control of assets placed in an irrevocable trust, they are effective removed from your estate, thereby protecting you from possible estate taxes.

There are many different types of irrevocable trusts. One common example, the irrevocable life insurance trust (ILIT) is a life insurance policy whose death benefits can be paid out to your heirs or help cover the costs of administering your estate without incurring any taxes.

Testamentary Trusts

Rather than creating and funding a trust immediately, it’s possible to create a trust that goes into effect upon your death. Known as a testamentary trust, this type of trust is created through a will and the terms of the trust are spelled out within the will. Testamentary trusts are often used as a tool that can help you create a trust for minor children. Even though assets in a testamentary trust may be subject to probate, the flexibility this type of trust offers when assigning a trustee may outweigh its costs.

7 Most Common Types of Irrevocable Trusts

There are many types of irrevocable trusts that can help you secure your assets and reduce taxes. Is it a good idea? They include the following:

  • Asset Protection Trust An asset protection trust is used as a fortress to keep creditors from seizing assets. There are asset protection trust laws in states such as Nevada, Wyoming, Delaware, Alaska and North Dakota. In practice, we have found that they can provide a fair level of protection, especially, for residents of those states. However, they have the disadvantage of being under US court jurisdiction. Judge’s do not always follow the law and there are ever-expanding legal theories of liability. So, we have seen assets in domestic trusts seized on numerous occasions. Offshore irrevocable trusts in jurisdictions such as the Cook Islands and Nevis have a perfect or near-perfect track record for protecting assets from judgment creditors. Because US judges do not have jurisdiction over foreign trustees, the trustee need not comply with US court orders.
  • Bypass Trust This type of trust that married people use. When one spouse dies, the property goes into the trust. The surviving spouse can use the property, but does not own it. This means that it is not part of the estate when the surviving spouse dies. This equates to tax savings.
  • QTIP Trust Another trust designed for married couples, a QTIP trust typically provides income to the surviving spouse when one spouse dies. When the second spouse dies, other named beneficiaries receive the assets. This is typically the settlor’s children. QTIP stands for Qualified Terminable Interest Property.
  • QDOT Trust A QDOT trust is similar to a QTIP trust. The difference is that noncitizens use it. QDOT stands for Qualified Domestic Trust.
  • Life Insurance Trust With this type of trust, the trust is both the owner and the beneficiary of the life insurance policy. Anyone, in turn, can be the beneficiary of the trust. The grantor must typically create the trust at least three years before death. It lets a person reduce or eliminate estate taxes so more of the proceeds go to the beneficiaries. The trustee, then, administers insurance proceeds for one or more beneficiaries.
  • Generation-Skipping Trust Wealthy families often use this tool. As the name implies, the trust skips a generation. The final beneficiaries are the grandchildren instead of the children. The children are beneficiaries of the income, but do not own the property. This means that when the children die, their trust property is not subject to estate tax. However, a generation skipping transfer tax may apply.
  • Charitable Trust If you don’t have any family – or maybe you do have family but don’t want to give them an inheritance – you can opt for a charitable trust. If you are not married and have no children this may be a good choice. This type of irrevocable trust allows you to give gifts to charity as a way to lower income and estate taxes. The charity benefits from your donation as well, so it’s advantageous to both parties. There are three types of charitable trusts.


How to set up an Irrevocable Life Insurance Trust


The Attributes of a Life Insurance Trust


Irrevocable: A life insurance trust is irrevocable. After it has been established, none of its terms can be changed.

Trustee: As with all trusts, a trustee is required for a life insurance trust. The trustee can be an individual or a financial institution. While you cannot be the trustee, and in many cases it is inadvisable to have your spouse serve as trustee, a friend or family member can serve.

Obtaining or Transferring Life Insurance: If you are obtaining a new life insurance policy, the application should be made by the trustee of the trust, rather than by you as an individual. If you have an existing life insurance policy, it can be transferred into a trust. However, in order to avoid the estate tax, you must survive for at least three years after the transfer.

Ownership/Beneficiary: The trustee of the trust will be both the owner and the beneficiary of the life insurance. This means that at your death the life insurance proceeds will be paid into the trust. The trustee will control it in accordance with the terms of the life insurance trust.

Paying the Premiums: The trustee will need to make the insurance premium payments to the life insurance company. Because the trust will not likely have any funds to make the premium payments, you will need to transfer funds to the trustee so that he or she can pay the premiums. Because these payments to the trust are gifts (and thus subject to gift tax), the beneficiaries must be given a “Crummey Power” so that the gifts are tax free. This Crummey Power will be explained further below.

Trust Beneficiaries

You will need to choose the beneficiaries of the trust who will ultimately receive the life insurance proceeds. The beneficiaries must be chosen when you set up the trust and they cannot be changed later. Often the beneficiaries of a life insurance trust are the same beneficiaries you would have under your will or living trust. If you decide to include your grandchildren as beneficiaries, you will need to take into consideration the effect of the Generation Skipping Transfer tax (a tax which is assessed on transfers that skip a generation).

Distribution of the Life Insurance Proceeds

Generally, no distributions are made from the trust until after your death and the life insurance money is collected. The trust can provide for the immediate distribution of the money or direct that the proceeds be held in trust. Holding the assets in trust is particularly useful with young beneficiaries. While in trust, the money can be managed and invested by the trustee for the benefit of the named beneficiaries. The trust can be for the benefit of one or many beneficiaries. Until outright distributions are made, the trustee can be given the power to spend money for the beneficiaries’ needs, such as education, medical care, buying a home or a business. Basically, the trustee acts as the parent financially. The trust can also allow for partial or lump sum distributions when a beneficiary reaches a certain age (such as 50% at age 25 and 50% at 30).

Life Insurance Proceeds Money to Pay Estate Tax

The proceeds of the insurance policy will also provide money to pay any tax. If because of other assets, your estate is subject to tax, the life insurance money can be used to pay the
tax. Having cash available can prevent the beneficiaries from having to sell assets, such as a business or a home.

Crummey Power Gift Tax Issues When Paying Premiums

Any contribution to the trust to pay life insurance premiums is a gift to the beneficiaries of the trust and thus may be subject to gift tax. Generally, you will want to keep annual transfers less than $14,000 per beneficiary so that your contributions will qualify for the $14,000 annual exclusion. However, the $14,000 annual exclusion only applies if the gift is a present interest (i.e. the beneficiary has an immediate right to enjoy the property). In order for a gift to meet this “present interest” requirement, the beneficiary must have a right to withdraw any contribution made to the trust for at least a thirty (30) day period before the contribution is used to pay the life insurance premium. In order to provide this withdrawal right, a special power (called a “Crummey” power) is given to a beneficiary to allow the beneficiary to make a withdrawal of the contributed amount. Clients are sometimes concerned that beneficiaries will actually exercise their withdrawal rights and take the contributed amount. While the beneficiary must be given a legal right to withdraw the money, as a practical matter a withdrawal usually does not occur. Most beneficiaries realize that if they exercise the right, it will be contrary to your wishes and may jeopardize further contributions to the trust. It is imperative, however, that there not be a prearranged plan that the powers will not be exercised, as this would enable the IRS to contend that the withdrawal power did not really exist.

A Life Insurance Trusts can provide tremendous estate tax savings. Not only will all of the life insurance money be available for the support of your children, but you can plan when and how your children are to receive the benefits. Once a life insurance trust is set up, the rules can be easy to follow with proper guidance and the benefits can last a lifetime.

Life Insurance Trust Requirements

In order to establish a valid life insurance trust, the trust must be irrevocable, you cannot be the trustee, and the trust must exist for at least three years prior to your death.

With the trust being irrevocable and managed by another person or entity, it ensures that you cannot control what happens to the assets in the trust.

If you are the trustee, the IRS will include the life insurance policy death benefit in your taxable estate. Having the trust established at least three years before your death is the IRS’s way of barring last minute transfers by settlors, in order to avoid estate taxes.

Life Insurance Trust Review

Pass down your legacy, on your terms.

The irrevocable life insurance trust (ILIT) is a popular tool for helping families like yours preserve and grow their legacies for generations to come. Often, families choose to incorporate ILITs into their estate-tax mitigation or asset protection plans.

The life insurance policies held by ILITs represent sizable wealth built over decades — wealth that deserves the same level of care and attention as any other financial asset.

But that’s usually not the case. Many ILIT grantors and trustees have a “set-it-and-forget-it” mentality when it comes to their life insurance assets, which can jeopardize future generations. Risks that can affect ILIT policy results are:

  • Return underperformance
  • Counterparty risk
  • Policy loan risk
  • Incorrect ownership or beneficiary arrangements
  • Failure to keep up with needs

The good news? We can help.

If you are a grantor or trustee of an ILIT, we help you review it.

If you want to set up an ILIT, we also can help you.

Contact us today at

Florida 813-964-7100

New York 716-565-1300