Legal Tip of the Week – 4/21/17!

Have you ever heard of Revocable Living Trusts and wondered who needs these types of trusts?  The term “trust” is often used by many professionals in the wrong context, causing a lot of confusion among clients who don’t know exactly what these trusts do and how they can benefit an individual or a family.  In my opinion, a New Jersey resident does not really need a Revocable Living Trust (“RLT”) unless he or she has very specific needs.

Don’t get me wrong – I love RLTs because of the benefits they offer, but they may not be for everyone.  This is where an initial intake session between the client and an estate planning attorney becomes very important.  This session is an opportunity for the attorney to really listen to the client’s needs and figure out what their estate plan should look like.  Let’s consider some examples:  if privacy is paramount to the client, and they don’t want the whole world to know who their beneficiaries are or how their estate is to pass upon death, then a Last Will & Testament will not work for them.  For clients with businesses who are concerned about their succession plan in the event of incapacity, a RLT would likely be a good route.  For clients with properties in other states, a RLT plan is infinitely superior to a Last Will & Testament because it avoids probate in multiple states. If a NJ resident dies with assets over the estate tax exemption (currently $2m) then it may be prudent to set up a RLT to avoid the inheritance tax lien, which would be placed on half of the estate assets until tax waivers are obtained.  (Waivers can take anywhere between 3-9 months after the filing of the estate or inheritance tax return which can be a frustratingly long time to wait).

However, contrary to popular belief, a RLT does not provide asset protection nor does it save estate taxes any more than a properly drafted Will does.  Irrevocable trusts are the types of trusts that offer both creditor protection as well as estate tax savings.  As their name suggests, these trusts are irrevocable and function very differently than a RLT.  For example, many clients are surprised to learn that they cannot be a trustee or a beneficiary of this trust unless established in a special jurisdiction.

So, the next time you hear the word “trust” thrown around, be sure to ask what type of trust is being referred to, and then consult with an estate planning attorney to see whether it will suit your specific needs.