For many New Jersey residents, creating an estate plan begins with a Last Will and Testament. However, a Living Trust (also known as a Revocable Living Trust) can offer significant advantages in addition to a traditional Will. When properly drafted and funded, a Living Trust allows your loved ones to avoid unnecessary probate, ensures privacy, and simplifies the management and distribution of your assets after your death.
Key Benefits of a Living Trust
Avoidance of Probate: Although the probate process is a relatively simple in New Jersey, one of the most important benefits of a Living Trust is that it allows your estate to bypass probate, assuming that your assets are placed in your Living Trust. This means your family will not need to wait for the probate process to be concluded prior to accessing your assets. In particular, ancillary probate – a separate proceeding required if you own property in another state – can be completely avoided. For New Jersey residents who own vacation homes or out-of-state real estate, this can save considerable time, expense and court involvement.
Privacy: Unlike a Will, which becomes public record once it is probated with the Surrogate, a Living Trust and its terms remain private. The details of your assets and who inherits them will stay confidential, protecting your family’s privacy.
Easier Access to Assets After Death: With a Living Trust, your chosen successor trustee can immediately step in to manage and distribute assets according to your wishes, without needing to wait for your Will to be probated. This ensures continuity and faster access to the assets of your estate for payment of expenses as well as ultimate distribution to your beneficiaries.
Ease of Administration: A Living Trust can also simplify management of your affairs if you become incapacitated. Your successor trustee can handle financial matters seamlessly, avoiding the need for you to be deemed incapacitated.
Other Important Considerations
While a Living Trust offers many advantages, it is important to understand what it does, and does not, do:
Income Taxes: You are still considered the owner of the assets in the Living Trust for tax purposes. Accordingly, the income generated by the assets of a Living Trust remains taxable to you, the trust’s grantor, during your lifetime, and reportable on your personal income tax return. The Living Trust does not obtain its own separate Taxpayer Identification Number or file its own income tax return, while you are alive.
Estate Taxes: A Living Trust does not reduce the size of your taxable estate. It is designed primarily for efficient management and distribution, not for tax reduction.
Gift Taxes: Transferring assets into your Living Trust does not trigger a gift tax given that you still maintain full control of such assets. You also maintain the ability to revoke or amend the trust at any time.
The Bottom Line
A Living Trust is an invaluable tool for those who want to make life easier for their loved ones, maintain privacy, and avoid probate. However, it is not a one-size-fits-all solution. Each family’s circumstances and goals are unique, and your estate plan should reflect that.
If you are interested in learning more about how a Living Trust can benefit you and your estate plan, call our office today to schedule a consultation with one of our experienced estate planning attorneys.
