New Jersey Trust Attorney
Seasoned New Jersey Trust Attorney Provides Legal Advice for Running Trusts in Bergen County, Hudson County, Queens County, Long Island, and Throughout North Jersey and NYC
Proper estate planning involves the use of a trust – a legal document that describes how your assets will be managed, protected, held, and distributed upon your death or incapacitation. Trusts are classified in two ways—living and testamentary. Additionally, there are two types of trusts—revocable and irrevocable. Read on to learn more about these trusts, including how a skilled New Jersey trust attorney at Choi Law Firm can help prepare one to fit your unique needs.
Living Vs. Testamentary Trusts
A revocable living trust is one of the most popular estate planning tools for managing and distributing assets during your life and at your death. People often make a living trust to avoid the probate process upon death because probate can be expensive, time-consuming, and generally more hassle than help. In a typical living trust, the same person who creates the trust (known as the settlor, grantor, or trustmaker) is appointed as the initial trustee (the person who is legally responsible for administering the trust according to its terms).
A testamentary trust is a trust within a will, and your trustee handles it upon your death. For example, suppose you have minor children and no trust. An experienced attorney can create a child’s trust (also known as a testamentary trust) for assets to be managed by a trustee in the best interests of your minor children, and for those assets to be eventually distributed to your children when they become adults or satisfy certain conditions.
Revocable Vs. Irrevocable Trusts
A revocable living trust may be terminated and amended by the settlor up until the settlor passes, at which time the revocable trust will become irrevocable. An irrevocable trust can also be created by the settlor during their life for certain purposes, including:
- Minimizing estate taxes
- Becoming eligible for government programs (e.g., Medicaid)
- Protecting assets (e.g., protection from creditors)
When a settlor creates an irrevocable trust, they generally cannot revoke it. Typically, to accomplish the settlor’s objectives, the settlor does not become a trustee of their irrevocable trust.
Minimizing Estate Taxes
A couple of trusts may minimize estate taxes, including an irrevocable life insurance trust and a charitable remainder trust.
Irrevocable Life Insurance Trust
An irrevocable life insurance trust owns a life insurance policy on behalf of the trust’s settlor. This can allow a life insurance policy to not factor into the settlor’s taxable estate.
After you set up a life insurance trust, you can transfer your existing life insurance to the trustee (or have the trust buy a new policy) and have the trustee pay the premiums with trust assets. When you die, the life insurance company will pay the policy to the trust, excluding it from your taxable estate. Then, your trust will pay the policy proceeds to your trust beneficiaries.
Charitable Remainder Trust
An irrevocable charitable remainder trust pays designated beneficiaries, including you, an annual distribution (often in quarterly installments) and the remainder to the charity. Contributions to the trust are generally eligible for a partial tax deduction. Distributions can be for a set term of years, no more than 20 years, or the life of one or more noncharitable beneficiaries. There are two main types of charitable remainder trusts— a Charitable Remainder Annuity Trust (CRAT) and a Charitable Remainder Unitrust (CRUT).
A Charitable Remainder Annuity Trust makes fixed annuity payments and does not allow additional contributions. A Charitable Remainder Unitrusts distributes a fixed percentage of the trust assets (revalued annually) and allows additional contributions.
For both CRATs and CRUTs, if the expiration of one or more noncharitable beneficiaries determines the term of the trust, then the remaining funds will be fully distributed to the designated charitable beneficiaries at the end of the term.
Becoming Eligible For Government Programs
In the United States, disabled beneficiaries and those on Medicaid and Supplemental Security Income have to satisfy income and asset limits. The beneficiaries lose these government benefits by having too much income or assets. Certain types of trusts, such as special needs trusts, can ensure beneficiaries do not lose their government benefits by inheriting too much money or having too high of an income.
Protecting Your Assets
You can use an irrevocable trust to protect your assets from creditors. However, the trustee and beneficiaries must be unrelated parties. These are uncommon in New Jersey but are more prevalent in states with favorable trust laws, such as Delaware, Nevada, and North Dakota.
Revocable Living Trusts In New Jersey
Creating a trust includes similar requirements as making a will, such as figuring out all of your assets to place in the trust, deciding who will inherit your trust assets, and who will be the person responsible for carrying out the terms of the trust.
New Jersey law has the following requirements for the creation of a trust in the state:
- The settlor has the capacity to create a trust;
- The settlor indicates an intention to create the trust;
- The trust has a definite beneficiary, or is –
- A charitable trust
- A trust for the care of an animal, or
- A trust for a noncharitable purpose
- The trustee has duties to perform; and
- The same person is not the sole trustee and the sole beneficiary.
Transferring Assets To The Trust
You’ll have to place your assets in the trust (known as funding the trust). With assets that have deeds or titles, such as cars and houses, you will deed and title those assets in the trust’s name. For example, your home will be titled in the name of Jane Smith Irrevocable Trust, dated January 1, 2022.
The trustee has the power to administer the trust assets as described in the trust. Generally, while living, you will name yourself trustee, giving yourself unlimited power to administer the trust assets as you see fit. A trustee or successor trustee can be a person or a bank. Having a company as a trustee can be costly but still necessary (e.g., you don’t trust your children to manage your trust).
New Jersey law dictates who is eligible to be a trustee, the duties of a trustee, and how someone (including a court) may remove a trustee.
Resignation Of Trustee
New Jersey law provides that a trustee may resign to qualified beneficiaries, the settlor (if living), and the trustee or trustees, if any, designated to succeed the resigning trustee. A trustee may also resign with the approval of the court.
Removal Of Trustee
New Jersey law provides that the settlor, co-trustee, or beneficiary may request the court remove a trustee. Under New Jersey law, a court can remove a trustee for the following reasons:
- After notice of the court’s order or judgment, the trustee neglects or refuses to obey
- After notice of any other order or judgment made under its proper authority, the trustee neglects or refuses to perform or obey the order or judgment within the time fixed by the court
- If the trustee embezzles, wastes, or misapplies any part of the estate for which the fiduciary is responsible or abuses the trust and confidence reposed in the fiduciary;
- If the trustee no longer lives in New Jersey and neglects or refuses to proceed with the administration of the estate and perform the duties required;
- If the trustee becomes incapacitated for the transaction of business;
- If the trustee neglects or refuses to perform the required duties.
Duties Of The Trustee
New Jersey law provides that the trustee must perform the following duties:
- Duty to administer the trust
- Duty of loyalty
- Duty of impartiality
- Duty of prudent administration
- Duty to use special skills
- Duty to enforce and defend claims
- Duty to collect trust property and redress breaches of trust, and
- Duty to disclose and discretion to periodically report.
The beneficiary is someone who will receive something upon distribution of the trust. A beneficiary can be a person, company, charity, or even a pet. There must be at least one beneficiary for you to create a valid trust. However, you can have as many as you want and direct the distribution of assets in any way you desire. For example, if you want your children and grandchildren to split 50 percent while your alma mater receives the rest, you can do that. You can place restrictions on the funds given to your alma mater, assuming it is a legal restriction, such as the funds only being allowed to be used for scholarships or building a new workout facility.
Fort Lee Estate Planning Attorney For Trusts
Are you interested in learning if a trust is right for you? If so, contact the experienced estate planning attorneys at Choi Law Firm by calling 201-482-4825 or contacting us online for a confidential consultation. Choi Law Firm will take the time to understand your situation and establish a trust that aligns with your needs and wishes.
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