Are Trusts Taxable in New York?

Establishing a trust is an excellent way to care for family members and other beneficiaries after death. The benefits of establishing a trust include:

• The avoidance or minimization of probate – When a trustor places assets in a trust, he or she reduces the chances of court intervention.
• Control of assets after death – A trust allows the trustor to direct the manner in which trust property will be disbursed to beneficiaries after death.

However, there are still tax issues that must be examined by anyone who is considering establishing a trust in New York. If property is transferred to a trust from an individual who is domiciled in New York, then the trust will be taxed according to New York’s tax laws. However, New York will not tax trust income if, over the course of a particular year:

• The trust had no New York domiciled trustees;
• The trust in its entirety was located outside of New York; and
• All gains and income of the trust were derived from sources outside of New York.

Unfortunately, even if the trust qualifies for a tax exemption, all trust distributions to New York beneficiaries will be taxed.

How to Establish a New York Trust

Despite the associated tax issues, trusts are a great estate planning tool. When establishing a trust in New York, the following steps should be taken:

1. Decide what to put in the trust – Items that would otherwise go through probate should be placed in the trust.
2. Decide who will inherit trust property – The individuals who will inherit trust property should be explicitly designated.
3. Decide who will manage trust property – If minor children will be the beneficiaries of trust property, then a responsible adult should be designated to manage the same until the inheritors reach the age of majority.
4. Prepare the trust document – Due to the technical nature of trust document preparation, it is advisable to seek the assistance of an experienced New York estate planning attorney prior to attempting to establish a trust.
5. Sign the document establishing the trust and have it notarized – After the trust document has been drafted, it must be signed by the trustor and notarized by a notary public.
6. Transfer all trust property to yourself as trustee – In order for a trust to be effective, the trustor should hold all trust property in his or her name as trustee.

New York Estate Planning Attorneys

The estate planning process can be complicated. At O’Connell and Aronowitz, our experienced New York estate planning attorneys provide individuals in Albany, Latham, Plattsburgh, Saratoga, and upstate New York with sophisticated estate planning guidance, including the preparation of wills, trusts, and other essential services. Estate planning is essential for everyone, regardless of financial status, in order to protect oneself and provide for loved ones. Please contact us for a consultation.