By Fredrick P. Niemann, Esq. of Hanlon Niemann, a Freehold, NJ Trust Attorney
A client recently requested a brief and simple explanation of a Trust. Here’s what I told him.
A Trust is a legal entity created by statute. In essence, It is an alter ego for a living person. A Trust holds title to property, all kinds of property (real estate, bank accounts, brokerage investments, etc.). The Trust names a Trustee when it is created and this trustee acts as the decision maker on behalf of the Trust and functions exactly as a living, breathing owner except it does not live and breathe.
A Revocable Trust is generally taxed under the Social Security Number of its creator. Not so with an Irrevocable Trust which files for a Federal Tax ID number. A Revocable Trust generally does not file its own trust tax return. Rather, trust income is filed under the creator’s 1040 federal income tax return. During the course of your life, you can’t serve as the Trustee of your own Trust and make all the same decisions as you presently do as the owner of your property and assets. The difference between you owning property and a Trust owning property is that we have to transfer legal ownership from you as an individual to you as the Trustee of your Trust. Why, because that is what the law says you must do to create a Trust and the IRS requires it. Once we do this, then all property owned by the Trust at the time of your death goes to the beneficiaries you name in the Trust. When you pass, a new Trustee takes over for you and distributes the Trust assets to the beneficiaries.
A Trust is not subject to probate. Unlike a Will when you die, property owned by you individually is subject to probate under your Last Will and Testament. Probate can be lengthy and its greatest detriment is that your assets are frozen (or partially frozen) until tax waivers are received from the State of New Jersey. Not so with a Trust. There is no interruption in your estate affairs once the new Trustee produces the death certificate of the previous Trustee. The new Trustee follows the terms of the Trust until it is time to disburse the assets to the individuals named in the Trust.
For me, I have a Trust based plan instead of a Last Will for the reasons outlined above. The Trust will avoid probate and avoid having my assets frozen at the time of my death until the Executor qualifies and all of the tax returns and waivers are issued by New Jersey.
To discuss your NJ Trust or estate matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at email@example.com. Please ask us about our video conferencing consultations if you are unable to come to our office.