While many people agree that it’s important to have an estate plan, just 33% of Americans have wills. Among millennials with estate plans, 75.18% have wills while far fewer have trusts. While they are not as common as wills, creating a trust with the help of an experienced New Jersey estate planning lawyer might help you achieve your estate planning goals.
Revocable vs. Irrevocable Trust
The first concept that your estate planning lawyer will want you to understand is the difference between revocable and irrevocable trusts. All trusts fall into one of these two broad categories.
Revocable trusts are created by the grantor and can be changed or modified while the grantor is still alive. The grantor retains control over the trust and the assets that it holds. While a revocable trust exists, any income earned by the trust is distributed to the grantor.
An irrevocable trust generally cannot be changed or canceled after the grantor creates it. When assets are transferred to the trust, the irrevocable trust assumes ownership. An irrevocable trust becomes a separate legal entity and owns the assets with which it is funded.
Revocable and irrevocable trusts are created for different reasons. Since the grantor doesn’t own the assets held by an irrevocable trust, it can be used to protect the assets from the reach of creditors or for tax purposes.
Revocable trusts provide greater flexibility while the grantor remains alive. The grantor can change or even cancel a revocable trust. Once the grantor passes away, the revocable trust will become an irrevocable trust. No changes can be made to the trust after the grantor’s death.
After you die, your trustee will distribute assets to your beneficiaries according to the document’s terms outside of probate. Since trusts, other than testamentary trusts, aren’t subject to the probate process, they allow for faster asset distribution while protecting your family’s privacy.
Testamentary Trust
A testamentary trust is a type of irrevocable trust that is created in a will. It doesn’t exist until after the testator dies. The will controls how the trust is created and when the beneficiaries will receive assets held by the trust. Unlike other types of trusts, however, testamentary trusts do have to go through the probate process since they are included in the will. This means that the beneficiaries will not have the same degree of privacy that they would with a different type of trust.
Spendthrift Trust
A spendthrift trust is often used to protect assets from creditors. The beneficiary receives payments over time. The funds remaining in the trust are not the beneficiary’s until distribution, so they can’t be reached by creditors or in divorce or bankruptcy.
Special Needs Trust
A grantor can establish a special needs trust to benefit a loved one with disabilities. This type of trust can pay the disabled beneficiary’s expenses without interfering with their ability to access Social Security Disability, Medicaid, Medicare, or housing benefits.
Bypass Trust
Married couples sometimes choose to create bypass trusts. When one spouse dies, the other spouse’s assets are divided between an irrevocable family trust and a revocable marital trust. The surviving spouse will own the assets held in the revocable marital trust and will receive income from the family trust. When the second spouse dies, the assets will pass on to the couple’s family members tax-free and outside of the probate process.
Charitable Trust
Some people want to ensure that their favorite charitable organizations receive continued support after they pass away. You can create a charitable trust for the benefit of one or more of yours. This type of trust also helps to reduce the size of your estate and may help you avoid taxes since the assets held in the charitable trust won’t count as a part of your estate.
Charitable remainder trusts are irrevocable trusts that allow you to receive income from the trust while you are still alive. Once you pass away, the remaining assets in the trust will go to the beneficiary charitable organization.
Consult a New Jersey Estate Planning Lawyer
Estate planning is important for adults of any age. If you are interested in learning about how it could benefit you and whether a trust might be something to consider, the experienced legal team at the Knee Law Firm in Hackensack, New Jersey can answer your questions. Contact us today to schedule an appointment at 201-996-1200 or by submitting our online contact form.