Selecting the Trust That Best Meets Your Objectives in NJ
It is Important To Make an Informed Choice About Which Type Of Trust Best Achieves Your Goals From the Variety of Possibilities Available
Estate planning is a fundamental aspect of financial planning that ensures your assets are managed and distributed according to your set particularities after passing on. In New Jersey, one tool that can be used as part of an estate plan is a trust. The trustor or settlor transfers ownership of assets to the trustee, who holds and manages them for the benefit of one or multiple beneficiaries. A variety of trusts exist, and each can be used for specific purposes, such as protecting assets from creditors, minimizing taxes, or providing for the care of minors or disabled individuals.
Your distinct goals, needs, and applicable New Jersey laws and regulations should be considered when determining which trust best fits you and your circumstances. Experienced estate planning attorneys can help you understand and evaluate the types of trusts and available options. They can also help you choose the most appropriate trust for your situation. To ensure your estate plan remains relevant and meets your current needs, it should be reviewed and updated regularly to reflect your current circumstances, not just a one-time event.
This article will provide an overview of the various types of trusts available in New Jersey and discuss the key concepts and details you should consider when creating a trust. You’ll also learn the importance of estate planning and how trusts can help you achieve your financial and personal goals.
For a free consultation with a knowledgeable estate planning lawyer about selecting, amending, or revoking a trust in Lavallette, Long Branch, Rumson, Wall, Asbury Park, and other towns in Ocean and Monmouth Counties, don’t hesitate to get in touch with us at (732) 812-3102. We can help with your trust-related questions and concerns.
Introduction and Advantages of Trusts
Let’s review several key advantages of using trusts in your NJ estate planning, starting with asset protection. A trust can be designed and established in such a way as to protect assets from creditors, lawsuits, and other potential threats. Along the same line, with finances in mind, tax efficiency is another benefit that can be derived from trusts. It is possible to structure trusts to minimize taxes and maximize beneficiaries’ assets. New Jersey has an estate tax with a threshold of $2 million. By using bypass trusts, generation-skipping trusts, or other trusts that allow assets to pass to beneficiaries free of estate taxes, it may be possible to reduce the tax burden on your estate.
Moreover, New Jersey also has an inheritance tax levied on transferring assets from a decedent to beneficiaries. The tax rate depends on the relationship between the decedent and the beneficiary. Using trusts to transfer assets may minimize the inheritance tax burden. In addition to the estate and inheritance taxes, New Jersey has a state income tax. By operating trusts to minimize taxable income, it may be possible to reduce the overall tax burden on your estate.
Another benefit trusts may offer, if set up accordingly, are to transfer assets to beneficiaries, also known as a simple asset transfer, without the need for probate, which can be a lengthy and costly process. Using a trust, you can specify exactly how and when assets will be distributed to beneficiaries, giving you the advantage of control over your assets before and after you’re gone. Trusts also offer a significant level of privacy as they are not subject to the same public disclosure requirements as wills and flexibility through customization to meet the specific needs and goals of the trust creator, making them a robust financial planning tool.
Most Common Trusts Created in New Jersey
The following are some of the main types of trusts that are used in the Garden State, their unique elements, and their pros and cons.
Also known as “living trusts,” revocable trusts allow the trust creator (also known as the “grantor” or “settlor”) to retain control over the assets and to make changes to the trust during their lifetime. When the grantor passes away, the assets in the trust pass to the named beneficiaries according to the terms of the trust. Revocable trusts can help avoid probate and provide asset protection and tax efficiency.
Positives of choosing a revocable trust include but are not limited to: allowing the grantor to retain control over the assets placed in the trust; they can be amended or revoked at any time during the grantor’s lifetime. They can also be employed to avoid probate and provide asset protection and some degree of tax efficiency. Some possible drawbacks of revocable trusts include not providing the same level of asset protection as an irrevocable trust and potentially not supplying as much tax efficiency as an irrevocable trust.
Different from revocable trusts, irrevocable trusts are more concrete once they are created. A person must decide to establish an irrevocable trust with full understanding that such a trust can’t be amended or revoked, even by the grantor. Such security can be helpful for asset protection and tax planning purposes, but it also means that the grantor loses control over the assets positioned in the trust. Irrevocable trusts can take several forms, including bypass trusts, charitable trusts, and GRATs (discussed above).
An advantage of forming an irrevocable trust is they provide a high level of asset protection. In addition, this type of trust can be used for extensive tax planning purposes.
These trusts are created under the terms of a will and do not take effect until after the testator’s death. Testamentary trusts can help provide for minor children or individuals unable to manage their own affairs. Testamentary trusts provide control for how and when assets are to be distributed to beneficiaries. Some drawbacks could be found in that these trusts are only set into action after the testator’s passing and may be subject to the same probate process as a will.
Asset protection trusts
This trust provides a high level of protection from creditors, lawsuits, and other potential threats, regarding your assets. They can also be created in such a way as to safeguard assets for future generations. Some potential disadvantages can be seen in cost, as asset protection trusts can be more expensive to set up and maintain than other types of trusts. In addition, they are more complex and may require the support and guidance of a proficient attorney.
Special Needs Trust
Another type worth mentioning is the special needs trust, designed to provide for the care and support of individuals with disabilities while still allowing them to maintain their eligibility for means-tested government benefits such as Medicaid. Special needs trusts can be established as either revocable or irrevocable. Lastly worth mentioning, as they have grown in popularity, are pet trusts. These trusts are used to care for pets after the owner’s death. Pet trusts can be either revocable or irrevocable.
Each type of trust has unique features and components, many of which offer the capacity to be tailored to your specific circumstances and conditions aimed at achieving different goals. It’s essential to consult with an experienced estate planning attorney to pick which type of trust is best suited to your needs.
Choosing The Right Trust to Establish
There are several components to consider when resolving which trust is best for you in New Jersey, including:
- Your goals: What do you want to achieve with your trust? Do you want to protect assets, minimize taxes, provide for your spouse, minor children, a beneficiary with special needs, or something else?
- Your assets: What assets do you want to include in the trust? Do you have a large estate that may be subject to estate taxes, or are you mainly concerned with protecting a specific asset such as a business or real estate property?
- Your beneficiaries: Who do you want to benefit from the trust? Do you want to provide for minor children or other special-needs beneficiaries, or do you want to distribute assets to a broader group of beneficiaries? Do you have a specific breakdown of the distribution?
- Your level of control: Do you want to retain control over the assets placed in the care of the trust, or are you willing to relinquish control in exchange for asset protection and tax benefits?
Below are some questions to consider asking your New Jersey estate and trust attorney and any questions specific to your circumstances, requirements, and specifications.
- Which type of trust is most fitting to my needs and my beneficiaries?
- How will the trust be taxed?
- What are the ongoing responsibilities of the trustee?
- Can the terms of the trust be amended or revoked?
- How can I ensure that the trust is sufficiently funded?
- What are the potential drawbacks of using a trust?
It’s paramount to carefully review and consider these critical factors and seek the advice of a capable attorney with experience to determine which trust is best for you.
Consult Our Estate Planning Lawyers About Your Trust Options at Our Brick or Sea Girt Locations
An experienced New Jersey estate and trust attorney at Bronzino Law Firm can aid you in selecting the appropriate trust in several capacities. With years of background in this area, one of our skilled lawyers will listen to your objectives and help designate the trust that best serves your needs while assessing and sharpening your goals. We can help you understand the tax and other implications of transferring different kinds of assets to a trust. In addition, we can work to identify the individuals or organizations you want to benefit from your trust and advise you on the most effective way to provide for them. Another point to consider is determining the level of control you wish to retain. Our passionate estate planning lawyers can help you understand the trade-offs between retaining control over your assets and the benefits of using an irrevocable trust for asset protection and tax planning.
Last but most importantly, we will answer any questions and help you understand the legal and financial considerations involved in forming a trust and other financial planning endeavors you may be considering. By working with an attorney at Bronzino Law Firm, you can be confident that you are making informed decisions about your estate planning and that your trusts are correctly developed and appropriately administered. Contact an experienced New Jersey estate and trust attorney handling these matters on behalf of individuals and families in Sea Girt, Spring Lake, Toms River, Point Pleasant, Manasquan Neptune, Wall, Brielle, Brick, and Monmouth and Ocean surrounding communities. For a complimentary consultation, call (732) 812-3102.