A Trust is a document created to own property on behalf of one or more individuals, one or more charities or even for another trust. These “people” are called beneficiaries. It operates almost like its own company, having a President (called the “Trustee”), along with all the rules and regulations stated in the trust document that must be followed by the trustee. The person (or persons) who create the trust is called a “Grantor” or “Settlor”.
Trusts can be created while you are alive (“Living Trusts” or “Inter vivos Trusts”) or can be created by a direction in your will at your death (“Testamentary Trusts”). Living Trusts can give the Grantors the power to cancel the trust (Revocable Trusts) or can be designed without this right (Irrevocable Trusts).
Revocable trusts are generally used by persons to avoid the cost of probate. In New Jersey, probate is a relatively simple and inexpensive process, so you will not find a lot of attorneys recommending revocable trusts for their clients. These trusts are also used for privacy purposes since trust documents are not filed with the surrogate and recorded in the public records. Attorneys fees for these documents tend to be 2 or 3 times to cost of basic wills and often add a layer of complexity to an estate plan that may be difficult for the average person to administer.
Irrevocable Trusts are usually used for tax planning purposes. Remember that these trusts cannot be cancelled by the Grantor so this is an arrangement that a person or couple may have to deal with for a very long time. Unlike a revocable trust, the Grantor cannot be the trustee of an irrevocable trust and the Grantor cannot be given the power to replace the trustee (with some exceptions).
There are many versions of irrevocable trusts. Some might own your home (Qualified Personal Residence Trusts or “QPRTs”), while others may own life insurance on your life (Irrevocable Life Insurance Trusts or “ILITs”). Some pay money to your beneficiaries and the leftover at their death goes to one or more charities (Charitable Remainder Trusts or “CRTs” “CRATs” “CRUTs”), while others pay money to one or more charities for a period of time with the leftover then being given to the beneficiaries (Charitable Lead Trusts or “CLTs” “CLATs” “CLUTs”).
For more information and a copy of our FREE report, “Some Things You Should Know About Trusts, But Didn’t Know to Ask”, complete our Contact form. Or you can email us and simply write FREE TRUSTS REPORT in the subject bar.