by Frank Campisano
People are often intimidated by the concept of a “trust” or trust fund because of the common perception that trusts are extremely complicated legal devices. Although it is often true that certain trusts can indeed be intricately structured to accomplish particular purposes, the fundamental components of a trust are not that difficult to understand.
Uses of a Trust Fund
Trusts in New Jersey are commonly used when it is beneficial and legally necessary for property to be owned and managed by someone other than the Grantor, or original owner of the property. Effective uses of trusts include estate planning, asset protection, avoidance of probate, avoidance of taxes, and protection of government entitlements such as Social Security and Medicaid.
Trust fund terminology defined
Trust Defined: A trust is a legal device that is designed to hold legal title to or otherwise own certain property or assets. A trust is often described as a “box” designed to own, manage and distribute property designated for certain beneficiaries. Therefore, the essential purpose of a trust is to create an artificial person who legally owns and manages property placed into this box or trust.
The person who creates the trust is known as either the Grantor or the Settlor. The person who owns, holds, manages and distributes the property in the trust is called the Trustee. The person who receives the distributions of property or income from trust is called the Beneficiary. The trustee acts in a fiduciary capacity (i.e. position of trust) to the trust. The Grantor thus transfers his property to the Trustee who holds the property and distributes it to the Beneficiaries.
How to Create a Trust in NJ
Trusts are created by either a written contract or by a Last Will and Testament. A written contract to create a trust is usually referred to as a Trust Agreement or Declaration of Trust. Trusts that take effect during the Grantor’s lifetime are referred to as Intervivos Trusts.
A basic contract for an Intervivos Trust should clearly identify:
(1) the key players of the trust;
(2) the purpose of the trust;
(3) the manner of control over and disposition of the property held in the trust;
(4) the termination of the trust.
Trusts created by a Last Will and Testament are referred to as “Testamentary Trusts”. They take effect only after the Grantor passes away.
Types of Trusts
There are two main types of trusts: Revocable Trusts and Irrevocable Trusts. Revocable trusts are those in which the Grantor maintains a significant degree of control over during his lifetime. The Grantor may freely change or terminate a revocable trust during his lifetime. Conversely, once an irrevocable trust is created by the Grantor, he generally relinquishes all ownership and control over the assets placed in the irrevocable trust. In New Jersey, an irrevocable trust may be amended or terminated by the Grantor only in limited instances, and he generally requires the consent of the other key players of the trust, such as the trustee and beneficiaries. Irrevocable trusts are commonly used in New Jersey for income tax and estate tax avoidance, protection of assets, and for Medicaid asset protection.
Seek Expert Legal Advice when setting up Trusts:
Although the fundamental concepts of a trust can be readily understood by most people, the design, use and implementation of trusts can be extremely complicated and should be left only to skilled and experienced legal practitioners. Frank Campisano of Sedita, Campisano & Campisano is an experienced elder law and estate attorney who can design and draft the trust that best fits your particular needs for asset protection, estate planning, estate tax avoidance and Medicaid planning.
Please contact Mr. Campisano to set up a free consultation.