When Trusts Are Useful

What is a trust?

A trust is a separate legal entity created to hold title to valuable assets such as cash, stocks or real estate for the benefit of some one or more other persons, with the responsibility of managing, investing and distributing such assets in accordance with the trust document. The person establishing the trust is called the "Donor" or "Settlor" if accomplished through an agreement between living parties, or a "Testator" if the trust is established in the Will of a deceased person. The person managing the trust is called the "Trustee".

Depending on the circumstances, establishing a trust may serve several purposes. Trusts are often employed in New Jersey to provide for minors and to save taxes in the passing of property by Will to the next generation. They are also frequently used to relieve individuals from the responsibilities of asset management, to aid in qualification for Medicaid and to isolate assets from creditors or spendthrift individuals. They may also be used to keep family disposition private, and to provide continuity of management in families as the beneficiaries age or as assets pass for the benefit of children or distant relations. Avoiding probate is important in some other states, but is not a major factor in trust establishment in New Jersey.

Trusts are private documents and may be customized to serve many purposes. They are often described in various ways depending on the purpose of the trust, the manner of its creation (such as by Will or Agreement), and as related to its nature (such as whether it is revocable, or provides an annuity, or whether it allows discretion in the trustees to invade principal or to hold back and accumulate the income).

Some commonly used trust descriptive terms are:

"Living Trust" - a trust established by Agreement between living persons (rather than by Will), often used to maintain the lifestyle of the settlor with greater simplicity and occasionally to take the place of terms of a Will.

"Revocable Trust" - a trust which allows the Donor to cancel the arrangement and reacquire the trust assets.

"Marital-Deduction Trust" - a trust established in a Will to provide for a surviving spouse and to obtain the marital deduction available in calculating the federal estate tax on the estate of the creator of the trust.

"Credit-Shelter Trust" - a trust usually established by Will to obtain the benefit of the applicable exclusion amount for purposes of calculation of the federal estate tax on the testator's estate.

"Charitable Remainder Annuity Trust" - a trust providing for payments to a living beneficiary of a certain amount during a period of years or a lifetime, following which the balance of the trust assets go to a charity. This is also an income tax savings device.

"Generation Skipping Trust" - the ultimate beneficiary is more than one generation younger than the trust's creator.

"GRIT", or "Grantor Reserved Income Trust" - a means of making a delayed gift to the settlor's beneficiaries at a discounted value.

"Supplemental Needs Trust" - a trust created by the donor during life or as part of a Will which enables the donor to provide for the continuing care of a disabled spouse, child, relative or friend. The beneficiary of a well-drafted supplemental needs trust will have access to the trust assets for purposes other than those provided by public benefits programs. Thereby, the beneficiary will not lose eligibility for benefits such as Supplemental Security Income, Medicaid and low-income housing.

As with all income and estate planning, anyone considering a trust should contact an attorney who is skilled and experienced in this area. The lawyers at Hunziker, Jones, & Sweeney have the skills and experience to help you in these matters and welcome your inquiries.

For more information, contact us at info@hjslawoffice.com