Nowadays, there are many different types of living trusts that are mainly categorized as either revocable or irrevocable. A New Jersey estate planning attorney must be familiar with all of them. Elder law and estate planning are increasingly difficult areas to navigate because the federal laws concerning estate planning and estate taxation have been in a state of flux these past few years.
A revocable living trust is one that that can be changed over time. Otherwise stated, it allows you to amend the trust, such as if you change your mind regarding who should serve as a beneficiary versus a trustee, etc. Conversely, an irrevocable living trust cannot be changed after the document has been signed. A trust can become irrevocable in two ways: the grantor of the trust designates it as irrevocable, or he or she held a revocable trust during their lifetime and has since passed away, converting it into this category.
Overall, there are numerous benefits associated with both a revocable and irrevocable living trust. For purposes of this article, we are focusing on how an irrevocable living trust may be the better choice of the two. Although only a seasoned New Jersey Estate Planning Attorney is in the best position to help you make this decision in light of your individual set of circumstances, it is essential nonetheless to consider the following benefits associated with an irrevocable living trust:
1. Serves as a state tax shield. Irrevocable living trusts are often chosen over other forms due to the fact that they remove the value of one’s assets from their estate. Meaning, a person’s property cannot be taxed upon their death. Since the trust, and not the decedent, owned the property, it makes perfect sense why the assets protected by the trust are not taxed.
2. Provides asset protection. Another common reason for creating an irrevocable living trust is that it provides asset protection for the grantor and his or her family. For example, when a person’s assets are placed into an irrevocable living trust, their property is no longer in their control and as such, at the mercy of creditors. Should a spendthrift clause be added to the trust, then its beneficiaries also benefit from its asset protection. Keep in mind that an irrevocable living trust is also an important part of one’s Elder Law trust documents, given that it protects a person’s estate from Medicaid should he or she ultimately require long-term care.
3. Provides a charitable tax deduction. In the event that the grantor makes an initial transfer of assets into an irrevocable trust to accomplish charitable estate planning, he or she will receive a charitable income tax dedication in the year that such asset transfer was made. Should the transfer of property occur after the grantor’s death, then the estate will receive a charitable estate tax deduction.
4. Eliminates the arduous probate process. All assets that are covered by a grantor’s irrevocable living trust are not subject to the hassles of probate, which is a court process that finalizes the payment of all outstanding debts and to distribute the remaining assets. Since NJ probate law can be a confusing and rather complicated process, it is best to avail yourself of the benefits of a trust. For more information, it is recommended that you speak with a seasoned New Jersey Estate Planning Attorney to help you.
5. Avoids capital gains. Assets that are transferred to an irrevocable living trust can be structured to avoid capital gains taxes. For further details, it is highly recommended that you speak with a tax professional as well as a skilled New Jersey Estate Planning attorney to assist you in making the right decisions for you and your family.