Very often, an individual client is reluctant to make substantial outright gifts to a young person, or someone else out of concern about their ability to capably handle their affairs, particularly when there is a long-term purpose for the accumulation of funds for the benefit of that young person. Trusts are a useful tool for wealth accumulation in such situations.

 

Restrictions and other planning strategies are commonly incorporated into a minors' trust as well as other types of trusts including life insurance trusts to protect children or immature or disabled adults until they are adults.

 

Irrevocable Life Insurance Trusts as an Estate Planning Tool in New Jersey

 

In appropriate estate planning situations, use of an irrevocable life insurance trust can serve as a powerful New Jersey and Federal tax savings tool. Life insurance proceeds that are kept outside of the taxable estate through proper planning can provide liquidity to estate heirs for a host of purposes.

 

There are two ways that an irrevocable life insurance trust (ILIT) can be effectively implemented: (1) the trust can be established initially and the trustee can subsequently take out and own the life insurance policy on the insured individual, or (2) an existing, or in-force, life insurance policy can be transferred to the trust. However, in the latter case, the insured must survive the policy's transfer to the trust by a period of three years or the insurance proceeds will be included in his or her gross estate for estate-tax purposes (IRC Sec. 2035). 

 

This is tricky material.  Feel free to contact Fredrick P. Niemann, Esq., an experienced NJ life insurance trust attorney at fniemann@hnlawfirm.com or call him at (888) 800-7442 for a low cost consultation.

 

Grantor Trusts for NJ Estate Planning

 

An individual can also make tax-advantaged lifetime transfers to a loved one through variations of a grantor trust design.

 

A grantor retained annuity trust (GRAT) can be set up to pay the grantor a fixed annuity for a term of years. Thereafter, the remaining trust principal passes to the trust’s beneficiaries.

 

Then there is a GRIT (grantor retained interest trust (GRIT)) which differs from a GRAT in that, instead of paying a fixed annuity to the trust grantor, the grantor receives all the trust’s annual accounting income.  At the end of the term, the remainderman receives the remaining trust property.

 

Charitable Gifts as an Estate Planning Device in New Jersey

 

Lifetime gifts to charity provide various planning options for single and married individual(s) who are charitably inclined and seek both income and estate tax savings. Depending on the individual donor's needs, charitable gifts may be made outright or through the use of a trust.  Significant income tax benefits can be achieved through use of charitable gifting in NJ.

 

A charitable remainder trust (CRT) is an option to consider when a person would like to make a significant charitable gift but is not comfortable relinquishing ownership of the gifted property.  A CRT can make payments to the donor or some other non-charitable beneficiary for life or for a term of up to 20 years and, when the income interest terminates, either distribute the remaining trust assets to a designated charitable organization or retain the property in trust for the charity's use.

 

The donor receives an income tax deduction for the present value of the charitable remainder interest (subject to the tax law's percentage-of-income restrictions on charitable contribution deductions). Subsequent distributions to the donor or other non-charitable income beneficiary are taxed under the rules of IRC Sec. 664(b).

 

Conclusion

A single individual or a married couple who has a taxable estate needs to look beyond the common solutions that are appropriate. The use of various gifting techniques can help a client accomplish income tax and estate tax savings, while minimizing exposure to transfer taxes.

 

If you should have additional questions, contact Fredrick P. Niemann, Esq. at fniemann@hnlawfirm.com or call him at (888) 800-7442.

 

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New Jersey Trust attorney 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