When Should a Trust Be Used Instead of a Last Will and Testament

Need a Trust Attorney for the Creation of a Trust?  Here’s How We Can Help.

If you need legal advice about a trust and its use in (1) estate planning, (2) asset protection, and (3) avoiding New Jersey probate, then please call Fredrick P. Niemann at (732) 863-9900 or e-mail him at fniemann@hnlawfirm.com. He warmly welcomes your inquiries.  You’ll find him very easy to talk to and understanding of New Jersey trust law.

UNDERSTANDING TRUSTS AND HOW THEY ARE USED

Many people have heard of “trusts” but really don’t know what they are, how they work, or whether they should be used in Estate, asset protection, and life care planning.

Maybe what I just said applies to you and explains why you are reading this website. If so, welcome. I’ve written extensively here about trust law topics and issues based on the many questions I’ve been asked over the years I’ve been practicing trust law. Please also watch my informative videos. When you’re done, if you feel I can be of further assistance, please do not hesitate to call or email me. Trusts are a unique legal creation and offer many benefits to those who understand them. Let’s explore the subject together now.

INTRODUCTION TO NEW JERSEY TRUSTS

Why Have a Trust

Perhaps you want to provide financial assistance to a loved one (a spouse, child(ren), companion, or aged parents) or a favorite charity. If so, a support trust can accomplish this goal.  Maybe you’d like to make a gift but are concerned that the beneficiary cannot responsibly manage and spend money or that your second spouse will disinherit your children if you die first. In these examples, you can structure a trust in a way that the beneficiary cannot be given unrestricted access to funds and income without the consent of a trustee that you select.  You can also create a trust where a beneficiary’s creditors cannot reach trust assets and income to satisfy a beneficiary’s debts and liabilities. Further, trust language can be drafted so that a beneficiary cannot demand payment of the trust principal without the trustee’s consent.

If you want professional management of assets because your spouse and/or other family members have little professional investment or business experience, a trust can ensure that someone with professional asset management experience serves in that capacity.

Maybe you want to provide income to one or more beneficiaries in the future. Still, you cannot presently predict the future to determine whether the beneficiary will actually need the income or principal.  If so, then you can create a trust in which the trustee has the discretion to distribute income and or trust corpus to beneficiaries now and/or in the future. Since the income needs of the beneficiary in the future are subject to change, a trustee will be in a better position to determine the actual needs of that beneficiary instead of you, especially if you are deceased. The trustee can distribute income as needed in a manner most beneficial to the beneficiary.

If you want to assist a family member who has suffered a disability through an accident or who has been disabled since birth or early childhood (e.g., a developmental disability), a special needs trust can be used to enable the disabled person to receive public assistance without disqualifying him or her from receiving public assistance benefits like Medicaid, Medicare, Section 8 housing, SSI, SNAP, utility subsidies, prescription drug and/or other forms of supplemental assistance. A trust, if properly structured, can achieve all of these objectives.

Finally, if you want to reduce potential federal and New Jersey death/inheritance tax liability, this objective can be achieved by the creation of certain types of trusts.

To summarize, you can create and use a trust in New Jersey for anything you want to accomplish as long as it does not violate New Jersey law and is not considered to violate public policy. For example, a trust established solely for the purpose of carrying on an illegal business or defrauding creditors is an illegal trust. Similarly, a charitable trust that violates a provision of the tax laws is illegal if its effect promotes an unlawful purpose. Likewise, a trust that obligates the trustee or beneficiary to perform negligent acts, or act against public policy as a condition for receiving income or trust principal, is an illegal or unenforceable trust. If a trust is found to be unlawful or contrary to public policy, it will not be enforced. But trusts with illegal provisions are few and far between.

Introduction to Trusts and Understanding the Benefits and Advantages of a Well-Written Trust (Part 1)

Introduction to Trusts and Understanding the Benefits and Advantages of a Well-Written Trust (Part 2)

HOW A TRUST WORKS AND SOME BASIC TRUST CONCEPTS YOU NEED TO KNOW

A trust is a fiduciary agreement (a “confidential and protective relationship”) in which property is transferred to a trustee for the benefit of someone else. The person creating and funding the trust is called a “settlor, trust maker, or grantor”. This person typically executes a written trust document and transfers property to a trustee.  The trustee is responsible for administering the trust. The person for whose benefit the trust is/was created is called a “beneficiary”. The property held in trust is often called “trust corpus”.

New Jersey statutes and case law under the Uniform Trust Code control the creation, operation, and termination of a trust.  The trust can be drafted any way you choose, except that it cannot contain a term that is illegal or contrary to public policy.  Generally, where a trust fails to address an issue, New Jersey case law and the Uniform Trust Code must be examined.

A trust may provide for the management of property, the distribution of corpus and income to beneficiaries, and other powers.

Trusts can also be created in a will and take effect upon a person’s death. These trusts are called testamentary trusts.

A trust that is written and funded during a lifetime (called a “living trust”) is generally not subject to probate following the death of the trust creator.

For a trust to be enforceable, a grantor must have what is known as legal capacity to create the “trust”.  Legal capacity means the grantor is of sound mind, memory, and legal age when he or she makes and/or signs the trust document.  A trust may be void or voidable if the grantor is found to lack capacity at the time the trust is created and signed.

There can be more than one creator (grantor) of a trust.  Two or more persons can create a single trust. For example, more than one individual (e.g., a husband and wife, a mother and grandmother, or two domestic partners) can transfer their separately owned property to a common trust. Also, jointly owned property and community property with multiple owners can each transfer their interest in the property to an NJ trust.

WHAT TERMS MUST A TRUST DOCUMENT CONTAIN?

New Jersey law requires that a trust be a written document. The trust must also appoint a trustee.  For a trust to function, it needs to be funded with cash or other property of value. If a trust is not funded at the time it is signed or is not supported by its creator in the future, it is a worthless trust. Finally, a trust requires the identification of trust beneficiaries.  A beneficiary is a person who receives income or principal from the trust, now or in the future. Someone, some organization, some class of beneficiaries (i.e., U.S. military veterans), or some “thing” (i.e., a pet) must be identified in the trust as a beneficiary or beneficiaries for this to be a valid, enforceable trust.

How to Pick a Trustee For Your Trust

THE ROLE OF THE TRUSTEE

TRUSTEE RESPONSIBILITIES UNDER NEW JERSEY TRUST LAW

The trustee receives legal title to the property on behalf of the trust and is responsible for administering the trust’s terms for the benefit of the named beneficiaries.  The trust document should identify the trustee and provide for successor trustees in the event a trustee is unable to serve. A trust document may name a trustee to act in the future.

A trust may have more than one trustee. When there is more than one trustee, they are often called co-trustees.  The trust document can specify whether a majority or all of the trustees must agree on decisions to be made by the trust.

There are generally two types of trustees: individual and corporate. A combination of individual and corporate trustees can also be used, but each should be carefully considered.

Individual trustees include (1) the person creating the trust, or (2) his or her family members, or (3) trusted friends and associates.

Corporate trustees include trust companies, banks, and other financial institutions with trust services. Corporate trustees are usually chosen for their expertise in trusts and because they will (hopefully) always be available to serve for years to come. Corporate trustees charge for their services, often based on the size of the trust’s assets.

A trustee has an essential responsibility to all beneficiaries of the trust.  Unless expressly waived under the trust’s terms, the trustee is responsible for complying with the Prudent Investor Act. This law requires the trustee to invest the trust assets prudently for the benefit of all beneficiaries.

Another law in New Jersey that the trustee must comply with (unless waived in the trust agreement) is the Principal and Income Act. Under this law, certain types of investment returns are treated as income, while other items are treated as principal. This affects the taxes owed by the trust or its beneficiaries. The trustee must render periodic accountings to ensure honest and legitimate administration of the trust for the beneficiaries.

In addition to these two laws, the trustee must file tax returns on taxable income. These returns include federal and state 1041A’s, which are income tax returns for the trust, and K-1’s, which are given to beneficiaries to disclose income distributions made to them.

In the administration of an NJ estate, a trustee of a trust created under a last will that is subject to probate must be careful not to take on the responsibility for acts reserved to the estate executor. An executor and a trustee each have defined duties to the taxing authorities and to the estate’s beneficiaries. A good-faith effort by the fiduciary to be fair and reasonable will often protect the fiduciary, but serving as a fiduciary is a complex undertaking that should not be undertaken without professional assistance.

WHAT KIND OF PROPERTY CAN BE TRANSFERRED TO A TRUST?

Virtually any kind of property can be placed in a trust, including bank accounts, stocks, bonds, IRAs, and qualified retirement plans; even bitcoin can be put into a trust. Other examples of property that can be transferred to a trust include a personal residence or investment real estate, a closely-held business, CDs, investments such as life insurance, and even cash.

Property transferred to a trust should follow the formality required for any property that is being legally transferred. For example, a transfer of real estate to a trust requires a deed to be filed at the County Clerk’s Office in the county where the real estate is located. A transfer of an automobile requires a formal title transfer to the trustee with the NJ Department of Motor Vehicles. A transfer of an insurance policy or an annuity involves a change of ownership and beneficiary designation form to be filed with the insurance company.

WHAT ABOUT BENEFICIARIES UNDER A TRUST?  WHAT ARE THEY ENTITLED TO?  HOW ARE THEY PROTECTED?

A trust must have at least one beneficiary.  A beneficiary may be either a named person, a member of some clearly identifiable class of persons (like your children, grandchildren, related family members), a charity, or an ascertainable entity (i.e., fishing or garden club, your pet in trust, a museum).

A trust beneficiary is entitled to receive property (whether identified as income or corpus) from the trust as specified in the terms of the trust document.

An income beneficiary of a trust is a beneficiary who receives distributions of income earned by the trust.  Income that is not distributed each year to a beneficiary loses its identity as income when it is accumulated. It then becomes corpus starting January 1st of the following calendar year. The trust document, however, can specify what happens to income in a calendar year when it is not distributed to a beneficiary and becomes trust corpus.

If the beneficiary of a trust dies before, during, or after the trust is created, the trust document should address what happens to the trust’s income and corpus in such an event.

TERMINATION OF A TRUST UNDER NEW JERSEY LAW

A trust generally terminates when the terms of the trust mandate termination and/or when the trustee has the power to terminate the trust and affirmatively exercises that power. Upon termination, the trustee will distribute the trust property to the beneficiaries (or the grantor in the case of a revocation), and the trust will end.

Should You Have a Trust?

I’ve given you a lot of information to absorb.  But you may still want to know if a trust is right for you.

Here’s a Brief Questionnaire to Decide if You Need or Want a Trust

• Do you want your minor/adult children to be the legal owners of your Estate immediately upon your death?
• Do you want your children by a previous marriage to be at risk of disinheritance by your present spouse after you die?
• Do you want to pay more in federal and New Jersey death and inheritance taxes while you’re alive or upon death?
• Is your spouse capable of handling financial matters and investments without you?
• Are your children/spouse good stewards of money?
• Do you want your current son-in-law(s) and daughter(s) in law to get your estate if your child dies or gets divorced?
• Will your grandchildren with disabilities and handicaps lose their public benefits if you leave them an inheritance?

If your answer to any of these questions is no, then you need to contact NJ trust attorney, Fredrick P. Niemann, Esq.

The attorneys at Fredrick P. Niemann, Esq., and Hanlon, Niemann and Wright have prepared trusts, wills, health care directives (living wills), powers of attorney, and numerous other estate/family, and business planning documents for individuals and families like yours for over 40 years.

Call our office today. Ask Mr. Niemann to personally discuss your trust issue(s) or interest in having a trust prepared.  He can be reached at (732) 863-9900 or e-mail him at fniemann@hnlawfirm.com.

Should I Have a Trust Instead of a Will in New Jersey?

 

If You Have a Trust, Do You Also Need a Last Will?

If you have a trust document in place, do you also need a Last Will?  The answer is simple and straightforward: Yes, you need a Last Will to control what happens to property you own, but where you may have unintentionally forgotten to retitle property to the name of your trust and/or left out property of your living trust.  Some examples of how this could happen:

1. You buy property in your name (say, a house or a car), then die or become incapacitated before you can transfer the title to the property into your trust.
2. You co-own a bank account with someone else with rights of survivorship (say, a child). The co-owner predeceases you, and you forget to name a new co-owner or beneficiary to the account.
3. Your credit card company is returning money to you for a canceled trip, but because of your death, it needs to be deposited.  Your checking account is in your personal name, not the trust’s name.

If an asset is not titled to your trust and/or has no co-owner or named beneficiary, then upon your death, this asset passes according to New Jersey intestacy laws, not according to the terms of your trust.  Thus, it could end up going to someone you don’t want to get it because you failed to sign a Last Will.

A pour-over will remedy the problem.  It directs that any asset you own personally without a beneficiary designation be transferred to your living trust.  Although your last will has to be probated, at least it eventually ends up in your trust and will go to the beneficiary or beneficiaries named in your trust, not to people the law says must receive it when you die without a last will.

 

Fred was interviewed by NJ 101.5 statewide radio on the topic of social media and estate planning concerning your online presence upon your death. Read Fred’s interview and the article which appears by clicking below.

NJ 101.5 Interview

 

 

CONTACT US

I hope my discussion about trusts has been helpful. Remember that the attorneys with Fredrick P. Niemann, Esq. and Hanlon Niemann & Wright have prepared trusts, wills, health care directives (living wills), powers of attorney, and numerous other estate/family and business planning documents for individuals and families like yours for over 40 years.

Call our office today. Ask for Mr. Niemann to personally discuss your NJ trust at (732) 863-9900 or e-mail him at fniemann@hnlawfirm.com.

 

Fredrick P. Niemann, Esq. spoke on Alzheimer’s Disease, a complimentary symposium for caregivers and family members presented by Alcoeur Gardens and The Memory Enhancement Center on Thursday, March 6th. Topics covered were memory loss conditions, caregivers’ tips and strategies, current treatment modalities including new research medications, support networking, VA benefits and how to preserve your assets.

Fredrick P. Niemann, Esq. was recently the featured speaker in Colts Neck, NJ at a seminar entitled Investments & Estate Planning for Trusts and Wills for High-Net-Worth Individuals.  He spoke on the current state of federal and NJ tax laws and how to protect family assets from catastrophic illness.

Recent Speaking Events by Fredrick P. Niemann, Esq.
You Can View Fred’s Current Schedule by Clicking Here

 

NJ Trust lawyer serving these New Jersey Counties:

Monmouth County, Ocean County, Essex County, Cape May County, Mercer County, Middlesex County,
Bergen County, Morris County, Burlington County, Union County, Somerset County, Hudson County, Passaic County