To Trust Or Not To Trust

Generally, if a family has a significant amount of assets (i.e., $12M+), or special family circumstances, it is recommended that they create a living trust in addition to a will. A living trust is a legal document that can be used to manage your assets during your lifetime and transfer them to your beneficiaries after your death without going through the probate process. It is important to speak with an experienced New Jersey trust attorney to understand the benefits and drawbacks of a revocable living trust.

To Trust

The average family typically does not need to set up a trust because it is usually more expensive and difficult to create and administer than a will or a revocable trust. Revocable trusts are simpler and more flexible, and can still offer some tax and asset protection benefits. Moreover, the average family may not need the more intricate asset and tax protection that an irrevocable trust provides. An irrevocable trust is more likely to be beneficial for individuals with higher net worths and who are at higher risk for lawsuits.

The federal death tax, also known as the estate tax, is imposed on the estate of a deceased person. This tax is calculated using the value of the estate and is imposed at the federal level. The amount of the estate tax can vary depending on the size of the estate. The federal estate tax exemption is the amount excluded from estate tax when a person dies. For 2022, that amount is $12.06 million. Here's how it works. Generally, when you die, your estate is not subject to the federal estate tax if the value of your estate is less than the exemption amount. In 2023 the federal estate tax exemption is $12,920,000 for an individual or $25,840,000 million for a married couple.

Additionally, the New Jersey Estate Tax is no longer imposed for individuals who die on or after January 1, 2018. (Prior to that, the Estate Tax exemption was capped at $675,000 on December 31, 2016 and was $2 million on or after January 1, 2017 but before January 1, 2018.)

Or Not To Trust

In New Jersey, probate avoidance can be achieved through joint ownership of assets, transfer-on-death registration for securities, and naming beneficiaries on bank accounts. In conjunction with a living trust a New Jersey Pour Over Will is a specific type of will that is drafted mainly for the purpose of helping an estate avoid probate. It is used to transfer any leftover assets into the trust already established by the person executing the will upon their death. The Pour Over Will also serves an important purpose in case a lawsuit needs to be filed, as the executor named in the will is responsible for distributing the assets in accordance with the terms of the will.

Regardless of any type of trust, the New Jersey Inheritance Tax was never repealed and is imposed on the transfer of property from a decedent to a beneficiary. The amount of tax imposed depends on several factors, including the relationship between the decedent and the beneficiary, the value of the assets, the type of assets, and the state of residence at the time of death. For example, Class D beneficiaries, who are not related to the decedent, are taxed at 15% on bequests up to $700,000, with a rate of 16% for amounts above $700,000.