What is a Revocable Trust?
A revocable trust, otherwise known as a "living trust" or "revocable living trust," allows an individual to transfer title of his or her property into a trust during his or her lifetime. The administration of the trust is overseen by a trustee and the person transferring the property is known as the "grantor" or "settlor."
In New Jersey, the grantor is also usually the trustee, although the grantor has the option of naming someone else as the trustee. If the grantor is also the trustee, the grantor will name a successor trustee who will take over trust administration at the grantor's death or in cases when the grantor becomes incapacitated and unable to administer the trust.
The grantor can transfer some or all of his or her property into the trust (known as "funding the trust"), including bank and investment accounts, stocks, bonds and real estate. But, like its name implies, a revocable trust may be changed or revoked at any time during the grantor's lifetime.
What are the Advantages of a Revocable Trust?
Limiting probate. Generally, a person's estate must go through probate before any of his or her property is distributed to beneficiaries according to the terms of the will. Depending on the state, the probate process can be expensive and time-consuming. Property that is held in a trust, however, does not go through probate because the trust, not the decedent, holds title to the property.
Avoid Ancillary Probate Proceeding. If a person owns property in more than one state, by holding title in their Revocable Trust it will avoid going through probate in multiple states.
Privacy. The probate process, including the contents of a will, is part of the public record. The contents of a trust, however, are not open to the public. Thus a revocable trust offers an opportunity for those concerned about privacy to keep their affairs out of the public eye.
When time is of the essence. Even though the New Jersey probate process is less complicated and more efficient than that found in many states, it still can take one to two weeks before the estate's executor receives the green light from the Surrogate's Office to begin administering the estate. A trustee does not have the same constraints and can begin distributing the trust assets as soon as practicable after the grantor's death.
Likewise, the trustee can continue to trade and sell securities held in investment accounts after the grantor's death. If the decedent had only a will, the estate's executor would have to wait one to two weeks before he or she could perform the same tasks.
Lastly, the trustee is not required to obtain estate tax waivers from the state for property held in trust. In 2002, New Jersey changed its tax laws and now requires estates with assets totaling more than $675,000 to obtain estate tax waivers from the state before half of all of the property in the estate can be liquidated or sold. It can take several months to receive these estate tax waivers from the state.
Control. For some individuals, the greatest advantage of the trust is the control it gives them over their assets. By naming themselves as trustee, they get to determine how to invest the trust assets and how much of the principal and income should go to them during their lifetimes. They also have the option of changing the trust terms, including beneficiaries, and if they decide they do not want the trust anymore, they can revoke it anytime before their deaths.
What a Revocable Trust Cannot Do
Eliminate estate taxes. While there may be some ways to lessen an estate's tax burden, assets owned in trust are subject to the same estate taxes as assets not owned in trust. Those concerned about limiting their exposure to estate taxes should consult an experienced estate planning attorney to learn more about potential strategies to accomplish this goal.
Eliminate the need for a will. Any property owned by the grantor at death that has not been transferred over to the revocable trust must go through the probate process. If there is no will in place to direct the court on how this property should be distributed, the court will distribute the property according to New Jersey's intestacy laws.
Generally those who have a revocable trust also have a pour-over will, which provides that any property owned at death not titled in the trust should be transferred into the trust, or, in other words, that the property "pours over" from the will into the trust.
Eliminate probate. Unless the grantor places all of his or her property into the revocable trust before his or her death, there is no way to avoid probate. Even the pour-over will must be submitted to probate before transferring over any remaining assets into the trust. Many people wish to avoid probate, but avoiding it altogether is not always in everyone's best interest.
Work Only with an Experienced Attorney
The New Jersey Attorney General's office and other state attorneys general have recently warned residents about living trust scams. New Jersey residents should be wary of anyone who contacts them over the phone or shows up on their doorstep offering to help them set up a revocable trust. Their products are unlikely to be legally enforceable and they usually charge exorbitant fees for their services.
If you are interested in learning more about revocable trusts, it is important to work with an attorney experienced in estate planning. Your attorney can discuss your goals and help you determine if a revocable trust is right for you.