When most people In New Jersey think about trusts, they think of rich children who may have never worked a day in their lives. Many people would be surprised to know that they aren't just for the rich and can be a valuable estate planning tool. Having a basic understanding of what trusts are and how they work can help make the decision whether one is needed.
At a basic level, there are two types of trusts -- those that are established while a person is still living and those that are established after a person dies. Whether a person needs a trust during their life or after their death depends on what the trust is intended to do. All trusts are meant to hold the property of the person creating the trust on behalf of someone else and are considered a legal entity for tax purposes.
Trusts that are established during the life of the maker are usually made in order to keep assets out of probate, transfer assets during life and keep assets from being made public after death. For example, a person can put their home into a living trust so that when he or she dies, whomever the trust has designated as a beneficiary will take ownership of the house without it going through probate. Testamentary trusts are those that are created upon death by a will. Many people with minor children include what is called a "minor's trust" in their will so that the parent's assets will be held in trust on behalf of the minor by the legal guardian established in the will until the child reaches a certain age. This ensures the parent's assets are not included in the probate and can be used right away to benefit a minor child.
There are many other types of trusts created to address specific circumstances both before and after death. These are just a few that are often used in estate planning. Knowing what trusts do and are used for can help when making the determination whether a trust is needed. Many people in New Jersey may find that a trust is exactly what they need.
Source: nj.com, "Szymanski: Trusts play vital role in financial planning," Eleanore Szymanski, June 2, 2013