Learning About Options for Trusts in New Jersey

There are many different reasons to create trusts in New Jersey as part of your estate planning process. Trusts can allow a person to leave assets to a beneficiary without those assets needing to go through the probate process, and trusts can also protect assets in various circumstances. For New Jersey residents with a disabled child or another disabled loved one for whom they want to provide care, a trust can allow the disabled person to continue to receive assets while remaining eligible for public benefits like Medicaid or Supplemental Security Income (SSI).

The person who makes the trust in New Jersey is known as the trustor or settlor, and the party that administers a trust is known as the trustee. The party (or parties) who receives benefits from a trust is known as a beneficiary. Within the broad category of New Jersey trusts, which can be revocable or irrevocable, there are many different types of trusts. The following are some of the common types of trusts that people opt to create in New Jersey.

Grantor Versus Non-Grantor Trusts 

A grantor trust is a type of trust that the grantor manages themselves, and this is typically created as a revocable trust. Not all states permit this type of trust, but New Jersey recognizes this type of trust. With a grantor trust, a person can establish a trust and then manage the assets in it just as a third-party trustee would. The grantor keeps the ability to change the terms of the trust since it is a revocable trust.

With this type of trust, the grantor includes any income from the trust on their personal income taxes. Non-grantor trusts are administered by a third party, and the trust is a separate entity that is taxed as a separate entity (in other words, the income from the trust is not included on any individual’s personal income tax returns). Many New Jersey residents establish grantor trusts so that beneficiaries can receive assets from the trust without having to pay taxes on the assets received.

Charitable Trusts and Charitable Remainder Trusts 

Under New Jersey law, a charitable trust is a type of trust that is operated for a charitable cause. This means it must be “operated exclusively for religious, charitable, scientific, literary, or educational purposes” and must serve a public interest. The flip side of a charitable trust is a charitable remainder trust.

A charitable remainder trust, or CRT, is established to provide income for a noncharitable beneficiary. The way CRTs work is this: assets are donated to the CRT while providing an income to a noncharitable beneficiary. Then, after a set period of time, any assets left in the trust will be paid to a charitable entity or used for charitable purposes. There are several types of CRTs in New Jersey.

Asset Protection Trusts 

There are multiple types of trusts that can be established in New Jersey that are designed for asset protection for the trustor or a beneficiary.

Special needs trusts, or SNTs, can be established for disabled adults so that the disabled adult remains a beneficiary of the assets in the trust while remaining eligible for public benefits. Medicaid asset protection trusts can be established so that an older adult can be eligible for Medicaid-covered long-term care without having to spend down according to Medicaid rules.

Contact a Summit Estate Planning Attorney 

Do you have questions about creating a trust? One of the experienced New Jersey estate planning attorneys at Dempsey, Dempsey & Sheehan can speak with you today.

Sources:

nj.gov/treasury/taxation/pdf/pubs/tgi-ee/git12.pdf

nj.gov/humanservices/dmahs/clients/SNT_FAQs.pdf

nj.gov/treasury/taxation/pdf/pubs/tb/tb64.pdf