Living Trusts Are Powerful Tools To Be Used With Caution
Living trusts are sometimes talked about as though they are the ultimate solution to every estate planning goal. It is certainly true that a living trust — which is simply a trust created and funded while you are alive — can help you accomplish a wide variety of things. But there is no silver bullet in estate planning. Living trusts have a few potential drawbacks you’ll want to consider.
Depending on their situations, people in New Jersey may create a living trust to accomplish such goals as:
- Ensuring that children from a previous marriage are provided for even if your present spouse tries to disinherit them after you’re gone
- Structuring control of your investments and finances in ways that prevent a spouse from squandering them
- Providing assets to children over time rather than all at once
- Preventing disabled children or grandchildren from receiving a large inheritance all at once, which might cause them to lose their public benefits
If you set up a revocable living trust, you can change or end the trust at any time. You can also serve as the trustee. This allows you to manage the trust and to add or remove assets while you’re alive. The trust also names a successor trustee who will take over management of the trust when you die, without needing any court intervention. If you create an irrevocable living trust, you lose the right to change or end the trust or to control its management.
As powerful as living trusts are, they do not solve every possible estate planning issue. Revocable trusts do not shield your assets from creditors, nor do they protect assets from estate taxes, inheritance taxes or Medicaid reimbursement. Irrevocable living trusts do protect assets from all those potential liabilities, but such trusts may end up paying extra income taxes and capital gains taxes.
Contrary to popular belief, a living trust does not enhance privacy in the administration of an estate. In New Jersey, the regular probate process that an estate would go through without a trust does not require disclosure of assets, income or distributions to beneficiaries.
If you choose to create a living trust, we recommend that you also create a pour-over will. This type of will provides for distribution of any assets that may accidentally be left out of your trust. The will directs that any asset you owned personally is to be transferred to your trust when you die. For example, if you buy a home but die before transferring the home to the trust, your will would dictate that it be transferred into your trust rather than pass to someone else under New Jersey’s intestacy laws.
The Paton law Firm LLC in Fairlawn, NJ helps residents of Passaic and Bergen counties create living trusts and other documents that achieve estate planning goals. We offer a free initial consultation. Call us at 201-470-4801 or contact us online.