Should I Set Up a Trust or a Family Foundation?

For families in Garden City and throughout New York, securing a financial legacy is a top priority. When you work hard to build your assets, you want to ensure they pass on according to your wishes. Many people ask whether a trust or a family foundation is the right tool to achieve this goal. While both serve as instruments for managing wealth, they operate under different New York laws and serve distinct purposes.

What Is a Trust in New York?

A trust is a private agreement that creates a legal relationship. One person, the grantor, gives property to a trustee to manage for a beneficiary. In New York, trusts follow the Estates, Powers and Trusts Law (EPTL). This body of law sets the rules for how trusts are created and managed (NY EPTL § 7-1.1).

Revocable Living Trusts

A revocable living trust can be changed or canceled at any time during your lifetime. You can even serve as your own trustee. This type of trust is often used to avoid probate, which is the court process of proving a will. By moving assets into a revocable trust, they are no longer part of your probate estate when you pass away. This allow assets to pass to your beneficiaries privately; but these assets generally remain part of your taxable estate and do not offer creditor protection during your life.

Irrevocable Trusts

An irrevocable trust generally cannot be changed once it is created without the consent of the beneficiaries or a court order. Because you give up control of the assets, they may no longer be considered part of your personal or taxable estate. Some irrevocable trusts offer benefits such as:

• Asset Protection: Certain irrevocable trusts may protect assets from creditors and legal judgments depending on how they are structured.
• Medicaid Planning: A specific type of irrevocable trust, known as a Medicaid Asset Protection Trust (MAPT), can help you qualify for long-term care. New York enforces a five-year look-back period for nursing home care (NYS Department of Health). A properly structured MAPT can help protect assets from being counted in this review.
• Tax Efficiency: Specific irrevocable trusts can reduce your taxable estate, which may help minimize estate taxes for your heirs if your estate exceeds the 2026 New York exemption of $7.35 million.

What Is a Family Foundation in New York?

A family foundation is a separate legal entity, often a corporation, created for charitable purposes. While trusts are private agreements, a family foundation is typically a private foundation rather than a public charity. It is formed under New York Not-for-Profit Corporation Law and must register with the New York State Attorney General’s Charities Bureau.

Oversight by the NYS Attorney General

The New York State Attorney General’s Charities Bureau supervises these organizations to ensure funds are used for charitable purposes. A family foundation must file annual financial reports, such as the CHAR500, which are open to public review. The foundation’s operations and financial activities are transparent and subject to public scrutiny (NY NPCL § 520).

Key Requirements for Foundations

A family foundation must meet specific federal and state requirements. It must operate for charitable purposes and must distribute a minimum percentage of its assets each year (generally 5% of its investment assets) for charitable giving under IRS rules.

Trust vs. Family Foundation: Key Differences at a Glance

Choosing between these tools depends on your goals. Here is a breakdown of their core differences:

• Purpose: A trust is primarily for private wealth management and distribution to individuals. A foundation is for structured, long-term charitable giving.
• Beneficiaries: Trusts can benefit specific people like children or a spouse. Foundations must benefit a charitable class or the public.
• Privacy: Trusts are private documents. Foundations are public entities with filings open for inspection.
• Governing Law: New York trusts are governed by the EPTL. Foundations follow the Not-for-Profit Corporation Law and are overseen by the Charities Bureau.

Making the Right Choice for Your Family

Deciding between a trust and a family foundation requires professional guidance. It involves looking at your assets, your long-term goals, and your wishes for your legacy.

Our team at the Davidov Law Group has been helping families in the New Hyde Park area and beyond plan for their futures since 2001. We understand the legal and financial complexities involved. We offer clear pricing for our services so you always know the cost upfront.

To discuss your situation, please contact us at 516-253-1366 or visit our blog page for more information.