INTRODUCTION TO NEW JERSEY TRUSTS:
HOW THEY WORK AND THE BASIC TRUST VOCABULARY YOU NEED TO KNOW

A NJ trust is a fiduciary relationship in which property is held by one (or more) person(s) for the benefit of one (or more) person(s). The person creating the trust is generally called a settlor, trust maker, or grantor. The grantor typically executes a trust document and transfers property to a person called a trustee.  The trustee is responsible for administering the terms of the trust. The person for whose benefit the trustee administers the trust is called a beneficiary. The property held in trust is often called trust corpus.

New Jersey statutes and case law controls the creation, operation, and termination of a trust.  The trust can generally be written any way you want it except to the extent that a term is illegal or against public policy.  Generally, where a trust fails to address an issue, New Jersey law must be examined.

A trust may provide for the management of property, distribution of income to beneficiaries, distributions of corpus to beneficiaries, and other powers.  In addition, there are many estate tax implications involving the creation and administration of a trust.  For example, when property is transferred to, from, or within a trust there may be a gift tax due.

Trusts which come to life when a person dies are called testamentary trusts and are subject to probate at the grantor's death. In the case of a testamentary trust, the grantor must have legal capacity at the time the trust document was executed. Capacity generally means the maker of a testamentary trust must be of legal age (18 years in New Jersey), and understand the extent of his/her property, the beneficiaries who will benefit from the trust, and the transfer of his/her property being made.

On the other hand, trusts, created during lifetime (living trusts) are generally not subject to probate.  A grantor must have the legal capacity to create a living trust.  Capacity refers generally to the grantor being of sound mind and legal age when he or she creates and/or signs the trust document.  A trust may be void or voidable if the grantor lacks capacity at the time the trust is created.

There can be more than one grantor of a trust.  For example, more than one individual can transfer their separately owned property to a common trust. Also, jointly owned property and community property with multiple owners can each generally transfer his or her interest in the property to a NJ trust.

WHAT MUST A TRUST DOCUMENT CONTAIN IN NEW JERSEY

New Jersey law requires that a trust be a written document. The trust must also appoint a trustee.

TRUSTEE RESPONSIBILITIES UNDER A NEW JERSEY TRUST

The trustee receives legal title to the property owned by the trust and is responsible for administering the terms of the trust for the benefit of the beneficiaries of the trust. The trust document should identify the trustee and provide for successor trustees in case a trustee is unable to serve as trustee in the future. The trust can specifically name the trustee or provide for selection or replacement of a trustee.

A trust may have more than one trustee. Where there is more than one trustee, these trustees are often called co-trustees.  The trust document can specify whether a majority or all of the trustees must agree on decisions to be made by the trustee.

There are two general types of trustees: individual trustees and corporate trustees. Any combination of individual and corporate trustees can be used, but should be carefully considered.

Individual trustees of a NJ trust generally include (1) the person creating the trustee, or (2) his or her family members, or (3) friends.

One can have a corporate trustee.  Corporate trustees include trust companies and banks and other financial institutions with trust services. Corporate trustees are usually chosen for their expertise with trusts and because a corporate trustee will (hopefully) always be there. Corporate trustees charge for their services, often based upon the amount of trust assets.

The trustee has an important responsibility to all beneficiaries of the trust.  Unless expressly waived under the terms of the trust, the trustee is responsible for complying with the Prudent Investor Act. This law requires that the trustee invest the trust assets prudently for the benefit of all the beneficiaries.

Another law in New Jersey, which the trustee must comply with unless waived in the trust agreement is the Principal and Income Act. Under this law, certain items are designated as income and other items are designated as principal. This affects the taxes owned by the trust or its beneficiaries. Periodic accountings must be rendered by the trustee and they must comply with the Principal and Income Act.

In addition to these two laws, the trustee must file tax returns. These include federal and state 1041’s, which are income tax returns for the trust and K-1’s, which are given to beneficiaries to indicate income distributions.

In the administration of a NJ estate, a trustee of a trust created under a will or probate estate must be careful not to take on liability for acts not properly done by the executor. An executor, an administrator and a trustee have personal liability to taxing authorities and to all of the beneficiaries of an estate. A good faith effort by the fiduciary to be fair and reasonable will not protect the fiduciary from this liability. Serving as fiduciary is a complex undertaking, which should not be attempted without professional assistance.

Contact us today.

To speak with a knowledgeable NJ trust law attorney, please call Fredrick P. Niemann, Esq. toll-free at (888) 800-7442 or e-mail him at fniemann@hnlawfirm.com and set up an office consultation at your convenience.

WHAT KIND OF PROPERTY CAN BE TRANSFERRED TO A NEW JERSEY TRUST

Virtually any kind of property can be placed in a trust, including real estate, bank accounts, stocks, bonds and even IRA’s and qualified retirement plans. Other examples of property that can be transferred to a trust include a personal residence or investment real estate, a closely-held business, CD’s, investments such as stocks and bonds, life insurance, or even cash.

Property transferred to a trust should follow the formality required for the type of property being transferred. For example: A transfer of real estate requires a deed to be filed at the County Clerk’s Office in the county of NJ where the real estate is located. A transfer of an automobile requires a formal transfer of title at the NJ Department of Motor Vehicles. A transfer of an insurance policy or an annuity may require a change of ownership form to be filed with the insurance company.

WHAT ABOUT BENEFICIARIES UNDER A NEW JERSEY TRUST

A trust must have one or more beneficiaries.  A beneficiary may be either a specified person, a member of some clearly identifiable class of persons (like your children, grandchildren, or related family members or close friends), a charity, or an ascertainable entity (ie., fishing or garden club, your pet, a museum). 

A trust beneficiary of a trust is entitled to receive property (whether income or corpus) from the trust as specified in the terms of the trust document.

An income interest in a trust is an interest in which a beneficiary receives distributions of income earned by a trust. 

Income which is not distributed annually is accumulated. The trust document can provide for the disposition of accumulated income.

If the beneficiary of a trust dies after the trust is created, the trust document can control what happens to trust property in that event.

TERMINATION OF TRUST IN NEW JERSEY

A trust generally terminates when the terms of the trust dictate it be terminated and/or when the trustee has the power to terminate the trust and exercises this power. Upon termination, the trustee will distribute the trust property to the beneficiaries (or the grantor in the case of a revocation), and the trust will end.

Here’s a Brief Questionnaire to Decide if

You Need or Want a Trust in New Jersey

·         Do you want your minor/adult children to be the co-owners of your estate with your surviving spouse?
 

·         Do you want your children by a previous marriage to be disinherited by your present spouse after you die?
 

·         Do you want to potentially pay more in federal and New Jersey death and inheritance taxes?
 

·         Do you want in-laws, family and/or friends filing lawsuits over the custody of your children?
 

If your answer(s) to any of these questions is no, then you need to contact NJ trust attorney, Fredrick P. Niemann, Esq. as soon as possible!

The attorneys with Fredrick P. Niemann, Esq. have prepared trusts, wills, health care directives (living wills), powers of attorney and numerous other estate/family and business planning documents for individuals and families like yours for over 30 years.

Call our office today. Ask for Mr. Niemann to personally discuss your trust situation toll-free at 800-888-7442 or e-mail him at fniemann@hnlawfirm.com.

NJ Trust lawyer serving these New Jersey Counties:

Monmouth County, Ocean County, Essex County, Cape May County, Mercer

County, Middlesex County, Bergen County, Morris County, Burlington County,

Union County, Somerset County, Hudson County, Passaic County