Are you contemplating setting up a trust in New Jersey?
Our Utlimate Guide to Trusts In New Jersey is here to help. Trusts are an estate planning mechanism for easing the probate process, securing assets against creditors, privacy, and establishing control of your assets before and after death.
Lack of a strong estate plan can cause family strife, higher tax burdens, and increased probate costs.
This guide begins by defining what a trust is. It then explores different types of trusts and their respective advantages. The blog outlines how to form a trust, transfer real estate into a trust, and sell real estate once it is in a trust.
Before learning how trusts work in New Jersey, review these preliminary definitions for context:
- Trust: Legal entity that allows for a third party, the trustee, to hold and direct assets on behalf of a beneficiary.
- Grantor/Settlor: Person who creates the trust and donates their assets into the trust.
- Trustee: Person or entity that manages, and is the legal owner, of trust assets on behalf of the beneficiary.
- Beneficiary: Person or entity receiving the benefits of the trust, often in the form of assets or income.
- Recovable Trust: Trust that can be altered or revoked during during the grantor’s lifetime.
- Irrevocable Trust: Trust that normally cannot be altered or revoked without consent of the grantor, beneficiary, and trustee.
- Probate: The surrogate court process of validating a will and settling an estate – which can be bypassed with certain trusts.
- Trust Estate: Asset placed in the trust, also known as res, corpus, capital, principal, or trust property.
- Will: A document that specifies an individual’s wishes concerning the distribution of their property, possessions, and personal care, including the care of minor children, after their death.
- Living Trust (“Inter-Vivos Trust”): Trust (either recovable or irrevocable) established during the grantor’s lifetime.
- Testamentary Trust: Trust established through a will and comes into effect after death of the grantor.
Do you want to ensure your trust is drawn up to meet your goals and comply with New Jersey’s legal requirements? Call us at 201-389-8275 or visit the Contact Us page for attorney assistance with setting up your trust.
What is a Trust?
A trust is an estate planning tool where one party (referred to as the grantor or settlor) transfers assets to another entity known as the trustee. The trustee as holder of legal title of the assets is responsible for managing the transferred assets for the beneficiaries’ benefit. Trusts in New Jersey are governed by the New Jersey Uniform Trust Code.
“A trust is an estate planning tool that is a legal entity that hold property or assets for a person. Trusts funds can hold a variety of assets, such as money, real property, stocks, bonds, a business, or a combination. Three parties are required in order to establish a trust fund: the grantor, the beneficiary, and the trustee. Trust funds are managed by the trustee who must act for the benefit of the grantor and beneficiary.”
IRS Reg. 301.7701-4(a) defines “a trust as an arrangement whereby trustees take title to property for the purpose of protecting and conserving it for the beneficiaries. Generally speaking, an arrangement will be treated as a trust under the Internal Revenue Code if it can be shown that the purpose of the arrangement is to vest in trustees responsibility for the protection and conservation of property for beneficiaries who cannot share in the discharge of this responsibility and, therefore, are not associates in a joint enterprise for the conduct of business for profit.”
See Matter of Catanio, 306 N.J. Super. 439 (App. Div. 1997) (“A trust is a fiduciary relationship with respect to property, subjecting the person by whom the title to the property is held to equitable duties to deal with the property for the benefit of another person, which arises as a result of a manifestation of an intention to create it.”)
The Function and Objective of Trusts
Trusts serve as protective mechanisms for your wealth and provide financial support after you pass away. They can also be used during your lifetime to manage financial and personal affairs, for example, if you can no longer make decisions for physical or congitive reasons.
Trusts operate through written agreements (“trust documents”) that detail how trustees should handle and distribute trust property based on conditions set by the grantor. This process is more efficient than typical wills as it can avoid the time-consuming court procedure to validate wills.
Revocable Trusts vs. Irrevocable Trusts
The most common categories of trusts in New Jersey are revocable trusts and irrevocable trusts.
A revocable trust provides flexibility, allowing changes or even dissolution at any point during your lifetime. It is utilized for incapacity planning or avoiding probate. Unfortunately, this flexibility comes at cost.
Recovable trusts do not offer asset protection against creditors nor federal estate tax savings since its contents remain part of your taxable estate. According to Experian: “with a revocable trust, your assets will not be protected from creditors. That’s because you maintain ownership of the trust while you’re alive.”
An irrevocable trust differs because once established alterations cannot easily occur without beneficiary consent. Irrevocable trusts offers asset protection from creditors while reducing federal taxes burdens since trust assets are no longer form part of taxable estates.
Role Of Trustees In Managing The Estate Plan Assets
Trustees play a crucial rose and a fiduciary duty towards current beneficiaries (those who receive benefits immediately) and remaindermen (who get what remains following initial distributions). Trusts typically identify a sucessor trustee who takes over management if the initial trustee dies or is incapacitated.
The trustee is the legal owner of the property but must use it for the benefit of the beneficiaries. As a fiduciary, he owes the beneficiaries duties of loyalty and care. See Trusts: Common Law and IRC 501(c)(3) and 4947.
See Meinhard v. Salmon, 249 N.Y. 458 (Ct. App. 1928) (“A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior. Uncompromising rigidity has been the attitude of the courts of equity when petitioned to undermine the rule of undivided loyalty by the ‘disintegrating erosion’ of particular exceptions. Only thus has the level of conduct for fiduciaries been kept at a level higher than that trodden by the crowd.”)
Types of Trusts Available in New Jersey
In New Jersey, various trust options exist for those seeking to create an estate plan that meets their specific needs. Each type serves a distinct purpose depending on your unique circumstances.
A revocable trust may be altered or revoked at any time by the grantor during their lifetime. This flexibility allows the grantor to maintain control the trust assets. A recovable trust becomes irrevocable and unchangeable after the grantor’s death.
The primary advantage is that the assets in an irrevocable trust are not subject to the probate process. The assets no longer belong to the grantor making probate inapplicable.
- Grantors creditors may still assert a claim to assets to the assets held in the trust.
- Grantor must still report any income earned from trust assets.
- The trust assets are included in grantor’s estate for purposes of estate taxes and inheritance taxes.
- The trust assets are counted for calculating the grantor’s eligibility for Medicaid or other health care benefits. Medicaid benefits have a 5-year “look-back” period for determining eligibility.
An irrevocable trust once established cannot be changed or revoked by the grantor.
Trust assets are permanently beyond the control grantor’s control and the grantor does not possess any legal rights to the assets.
Creditors cannot make claims on the assets in an irrecovable trust as long as the grantor did not reserve rights to the trust asset. The assets are not subject to the probate process.
Irrevocable trusts allow for beneficial tax planning strategies.
They remove assets from your taxable estate, reducing potential federal estate tax liability while safeguarding property against creditors’ claims simultaneously. Assets funded into irrevocable trusts are treated as gifts to the beneficiary.
Irrevoable trusts also can move income from the grantor to family members reducing overall tax liability. The assets funding into an irrecovable tr
A testamentary trust is a type of legal arrangement created in accordance with a person’s will that comes into effect upon the maker’s death. It outlines how the deceased individual’s assets should be managed and distributed. The will specifies a trustee, who is responsible for managing the trust assets in the best interests of the beneficiary or beneficiaries. This type of trust is often used as a mechanism for managing inheritance, especially when minor children are involved, or when the testator wants to provide for a beneficiary but doesn’t want to give them full control over the inherited assets.
Testamentary trusts can also provide some tax benefits, but they do not protect against estate taxes or probate. As with any complex financial or legal matter, it’s recommended to consult with an attorney or financial advisor when setting up any type of trust.
Bypass (Credit Shelter) Trusts
Credit shelter trusts, commonly known as bypass trusts, serve married couples with substantial estates looking to minimize taxes when transferring wealth posthumously following both spouses’ demise. New Jersey Treasury Department’s taxation division.
The purpose of a tax bypass trust is to “bypass” the surviving spouse’s estate to utilize the full estate tax exemptions of both spouses, thereby reducing the amount of estate tax due upon the death of the surviving spouse.
Charitable can be crucial component of an effective estate plan, particularly for individuals with significant assets who wish to contribute to society. In New Jersey, there are two primary types of charitable trusts: the Charitable Remainder Trust (CRT) and the Charitable Lead Trust (CLT).
The CRT is a type of irrevocable trust that provides income to the donor or other beneficiaries during their lifetime or a specified term. Upon termination, the remaining trust assets go to one or more charities selected by the grantor. This kind of arrangement allows you as a grantor not only to enjoy tax benefits but also to retain some benefit from your property during your life.
In contrast, CLTs operate in reverse order compared with CRTs. The charity receives income from the trust for either a set number of years or throughout the donor’s lifetime; after this period ends, any remaining funds in the trust revert back to non-charity beneficiaries such as family members.
Both of these types offer unique advantages depending on individual circumstances and estate planning goals. They can help reduce federal estate tax liability while fulfilling philanthropic objectives. However, it’s essential to consult with professionals experienced in handling living trusts, like those at Law Firm Earl P White, when deciding which type best suits your needs. Charitable trusts are governed in New Jersey by the “Charital Trust Law of 1971” and 26 USCS § 664 (“Charitable remainder trusts.”)
Special Needs Trusts
A special needs trust can be a valuable tool for supporting a loved one with disabilites. Special needs trusts are legal structures whereby a physically or mentally disabled person can receive income without the loss of access to otherwise available public assistance.
In New Jersey, a “protected person” eligible is defined to include persons: (i) aged, blind, or disabled; (ii) developmentally disabled; or (iii) under the age 18, or over the age 18 and a full time student, with serious disabilites that reasonably may prevent the individual from being self sufficient as an adult. See N.J. Stat. § 3B:31-37 (“Special Needs Trust”).
The goal of these trusts are to manage the resources for the benefit of the person with special needs, but not losing eligiblity for public benefits including Medicaid or Supplemental Security Income.
Special needs trusts designate that the funds should not be used for expenses that the public benefits programs (such as roof and housing) are intended to cover. The special needs trust can then be used to cover other items such as vacations, home furnishings, education, and recreation.
A “Spendthrift Trust” is designed to protect the trust assets from beneficiaries creditors and to assist the beneficiary in making good financial choices. In spendthrift trusts, the trustee has authority to make decisions as to how trust funds should be spent for the beneficiary. A spendthrift trust is only valid if it restraints both volunty and involuntary transfer of a beneficiary’s interest. See N.J. Stat. § 3B:31-36 (“Spend thrift provision”).
Although New Jersey recognizes spendthrift trusts, beneficiaries maintain the right to challenge the decisions of the trustee if they have abused their discretion.
A “Totten Trust” (also referred to as a “trust account”) is an account with a bank or other financial institution in the name of the holder as trustee for another person.
Totten trust accounts are governed by New Jersey’s Multi-Party Deposit Account Act. The Act deals with accounts such as Payable on Death (POD) accounts, joint accounts with right of survivorship, and similar financial setups. It provides rules for how the funds in these accounts can be accessed, how they are divided upon the death of a co-owner, the financial institution’s obligations, and rights of the co-owners.
Life Insurance Trusts
A life insurance trust involves a trustee who oversees a life insurance policy according to the terms outlined in a trust agreement. The goal of a life insurance trust is to manage a life insurance policy and its proceeds to avoid estate taxes, control use of the funds, or execute other estate planning measures.
Typically, in a life insurance trust, the policyholder transfers the ownership rights of their life insurance policy to the trust. When the policyholder dies, the insurance proceeds are paid to the trust, not directly to the beneficiary. Then the trustee is responsible for managing and distributing the funds as per the stipulations of the trust agreement.
A Crummey Trust is a type of irrevocable trust which allows parents to make gifts to their children, which are excluded from their taxable estate, while maintaining their estate’s liquidity. The name derives from the court case, Crummey v. Commissioner, which affirmed this strategy’s legality.
The central feature of a Crummey Trust is the Crummey Power, a provision which gives beneficiaries the temporary right to withdraw contributions to the trust. This mechanism is significant as it allows the contribution to qualify for the annual gift tax exclusion, an essential component of managing estate taxes in estate planning.
Here’s how it typically works: The person who creates the trust (the grantor) contributes assets to the trust and, per the Crummey Power provision, the beneficiaries have a limited period (usually 30 to 60 days) during which they can withdraw the contribution. If the beneficiaries do not exercise this withdrawal right, the assets then stay in the trust and can be managed and distributed per the terms of the trust.
Qualified Terminable Interest Property Trusts
QTIP trust, or Qualified Terminable Interest Property trust, is a type of trust used frequently in estate planning, especially in second or subsequent marriages. This type of trust allows the grantor to provide for a surviving spouse and also to maintain control of how the trust’s assets are distributed once the surviving spouse dies.
The benefits of a QTIP trust include the ability to delay estate taxes. Unlike most trusts, the QTIP lets the surviving spouse receive income from the trust, and at their demise, the assets pass to beneficiaries determined by the first spouse to die.
Essentially, this kind of trust is about balancing between taking care of the surviving spouse and ensuring that the assets eventually go to the intended beneficiaries (often the children from the first marriage). It works as a tool to protect the interests of the first-to-die spouse, as well as their children, from being disinherited.
Advantages of Establishing a Trust
Why set-up a trust in New Jersey?
Trusts can be an essential block to a well-designed estate plan.
Benefits include estate tax savings, asset protection against creditors, estate tax savings, and prviacy. Trusts can provide you control of your hard-earned assets – before and after death or incapacity – and are a vehicle for planning for future generations (and even pets!).
These benefits vary, of course, depending on the type of trust and provisions in the trust documents. Comprehensive legal guidance is recommended to navigate selecting the appropriate trust for you needs.
Do you want to ensure your trust is drawn up to meet your goals and comply with New Jersey’s legal requirements? Call us at 201-389-8275 or visit the Contact Us page for attorney assistance with setting up your trust.
Estate Tax Savings
Reducing estate taxes is one of the primary motivations to create a trust. As of the writing of this blog post (August 2023), New Jersey does not impose an estate tax after death.
However, federal estate taxes apply for estates exceeding $12,920,000.00 in 2023. This doubles to $25.84 million for married couples.
Irrevocable trusts (not revocable trusts) can reduce these estate taxes. Assets transferred into an irrevocable trust are no longer your personal property. As such, they are not counted towards your net worth for federal estate taxes.
Trust scan also ease tax burdens by maximizng your annual gift tax exclusion. In 2023, the maximum gift you can make without paying federal gift tax is $17,000.00 per gift recipient. Transferring money into an irrevocable trust each year lets you captilize on the full gift tax each year without a specific donation to a person.
Avoidance Of Probate Process
A key feature of trusts is avoiding probate.
Probate is the judicial process to validate a will after a person’s death. Probate can be complicated and includes filing a court petition, notifying heirs and creditors, creating an inventory of estate assets, paying off creditors, and closing the estate.
Needless to say – probate can be time consuming and legal fees can pile up.
Assets placed in either a revocable or irrevocable trust do not undergroup the probate process. This allows for quicker distribution to heirs without court intervention, saving both time and money during the potentially difficult period for loved ones left behind.
Trusts allow for personal privacy.
Private Wills. Wills become public record once filed with the local surrogate court. Trusts, on the ohand, are a private document mainly limited to the grantor, trustee, beneficiaries, and financial or legal advisors. Wills may also contain sensitive family information involving children, marital history, and poor family relations.
Discrete Asset Transfer and Ownership. Assets held in a trust are not publicy associated with an individual. For example, most real estate can be viewed on a county website – including the name of the owner. Placing the property into a trust will alleviate your name in public records.
Disadvantages of Establishing a Trust
Trust are not the right solution for can be an effective tool for estate planning.
Irrevocable trusts are not flexible for future changes in circumtances (think divorce, marriage, changed financial circumstances). Revocable trusts are flexible but don’t give protection from creditors.
For simple estates, perhaps a will is sufficient. Trust have increased due to the complexity and attorney skill involved. Are you inclined use a will rather than a trust? Learn more about wills in our blog “How to Make a Will in New Jersey”.
The Expense Involved in Setting Up a Trust
Creating a trust involves more than just drafting the necessary documents.
Legal fees can be high. Transferring assets into the trust may have financial cost (and time costs!).
Trusts are complex – downloading a form on the internet is not remotely in the realm of a good resolution (and probably isn’t for simple will either).
Beyond setup, there may be ongoing administrative expenses such as trustee fees or accounting charges if regular audits or tax filings are required by your specific type of trust.
- Trustee fees: Professional trustees charge for their services. Even for a non-profesional, time may be lost (and time is money as they say!).
- Administrative costs: Real estate, managing investments, and managing a business have upkeep costs.
- Legal fees: A complex trust should be re-visited periodically with an attorney.
Rigidity With Irrevocable Living Trusts
Irrevocable trust don’t offer much room for change once established. unless court intervention occurs. Lack of flexibility create problems if changes are needed in the future. Revocable trusts solve this problem – but with less protections.
Potential Tax Implications
As noted above, one of the key factors in setting up a trust is federal tax gains.
However, laws change periodically. Benefits that made sense at the beginning could be lost in the future defeating the purpose of creating the trust in the first place.
Misuse By Trustees Risk
All grantors obviously should conduct proper due diligence in selecting a trustee.
Nonetheless, even a thorough process of selection is not a guarantee of the trustee competence. There is always an inherent risk of misuse mismanagement (intentionally or unintentionally) for property stored in a trust.
How to Form a Trust in New Jersey
Once you decide the benefits of forming a trust outweight the costs, the next step is forming the trust.
The steps to form a trust in New Jersey are assessing your estate planning goals, selecting the type of trust, naming beneficiaries, selecting a trustee, funding the trust after creation, and compliance and regular reviews.
The process and laws for creating a trust are set forth under the New Jersey Uniform Trust Code, as well as the history of court cases and fairness. N.J. Stat. Ann. § 3B:31-6 (“The common law of trusts and principles of equity supplement this act”.)
Read on for the specifics of how to form a trust in New Jersey.
Determining Your Estate Planning Goals
First, identify why you’re establishing the trust and your overall estate planning strategy.
Looking to manage real estate or avoid probate? Prviacy? Perhaps reducing federal estate tax liability is your goal. The goals of the your estate planning also for stratgeic decisionmaking.
Common goals of estate planning include:
- Wealth Preservation. Proper estate planning can help preserve your wealth for future generations by allowing you to control how your assets are distributed after your death, providing financial security for loved ones.
- Tax Minimization. Minimizing federal estate taxes is part of any estate plan.
- Avoiding Probate Process. Estate plans often use trusts function to avoiding the often lengthy and costly probate process. Simplicity and privacy.
- Safeguarding Beneficiary Interests. Spendthrift trusts protect heirs from creditors while testamentary trusts ensure minors don’t receive inheritance outright before they’re mature enough to handle it responsibly.
- Charitable Giving. The grantor can support causes they care about while capitalizing on tax advantages.
Selecting an Appropriate Type of Trust
Once your clear on your estate planning goals, the next step is to consider trust options. As detailed above, there are many options. Each trust has unique characteristics catering to varying needs and circumstances.
This is where an estate planning attorney shines.
An experienced estate planning atorney will have the knowledge of the trust structures and their c omplexities, tax implications, and be able customize to your unique goals and circumstances.
A beneficiary is any person who has a present or future interest in a trust. See N.J. Stat. Ann. § 3B:31-3.
This step involves deciding who benefits from trust assets as set forth in the trust documents.
The following are vital considerations in selecting a trust beneficiary: (1) what type of trust you are forming as benefits mary vary; (2) agent and responsibility level of beneficaires; (3) any special need of the trustee or other benefits that could be jeopardize by trust benefits; (4) reduction of federal or state taxes; and (5) long-term needs of potential beneficiaries such as providing for a surviving spouse or relatives, and children’s educational costs.
Trust beneficiares have no powers over management of the trust, although could seek court intention for trust mismanagement. See N.J. Stat. Ann. § 3B:31-71 (“Remedies for breach of trust”).
Selecting a Trustee
Trustees effectuate your estate plan. The right trustee is crucial to ensure your estate plan works as you intend.
The trustee (a person or institution) is responsible for managing trust assets, making distributions according to the trust agreement, and carrying out other duties outlined in the document.
Trustees may be individuals and other options include banks, trustee companies, or other corporate entities. Co-trustees are permitted. See N.J. Stat. Ann. § 3B:31-3.
Here are five considerations for choosing an appropriate trustee:
- Professionalism and Experience. The role of a trustee requires knowledge about tax planning, investing, laws related to trusts such as living trusts or testamentary trusts, and real estate if any real estate property is included in the trust’s assets.
- Financial Responsibility. A good trustee should have sound financial judgment.
- Integrity and Honesty. Ingegrity is important as the trustee must uphold their fiduciary duty to act in the best interest of beneficiaries.
- Longevity. If your estate plan includes long-term arrangements, consider age and health status and who could serve over extended periods.
- Interpersonal Skill. An ideal candidate possesses excellent communication skills necessary for dealing with different stakeholders and potential conflicts among family/beneficiares.
Executing the Trust Document
Once the goals and structure are selected at a high level, the next step is to create and execute the trust document.
The New Jersey Uniform Trust Code permits three methods for creating a trust.
According N.J. Stat. Ann. § 3B:31-18: A trust may be created by:
- transfer of property under a written instrument to another person as trustee during the settlor’s lifetime or by will or other written disposition taking effect upon the settlor’s death;
- written declaration by the owner of property that the owner holds identifiable property as trustee; or
- written exercise of a power of appointment in favor of a trustee.”
The most common is a written instrument (or will in the case of testamentary trusts).
Per N.J. Stat. Ann. § 3B:31-18, a trust has five requirements:
- The grantor has capacity to create a trust;
- The grantor intends to create the trust;
- The trust has a definite beneficiary, or is a charitable trust; a trust for the care of an animal, or a trust for a noncharitable purpose;
- The trustee has duties to perform; and
- The same person is not the sole trustee and sole beneficiary of all beneficial interests.
Needless to say, trust have sophisticated requirements. Please consult a qualified estate planning attorney.
Funding The Trust
In order for any created structure to take effect, you must transfer ownership of designated assets into the name under the control of the appointed trustee(s). Depending on the nature of the asset, i.e., bank accounts versus properties, procedures vary considerably.
For real estate, an attorney can prepare a deed conveying ownership from the grantor to the trust. For shares of a stock, contact your broker or financial institution with details about the trust and request for them to retitle the stocks in its name. Your broker or financial institution should update their records accordingly once they’ve retitled your stocks into the name of your trust.
Compliance and Regular Reviews
Last but not least, it is important to regularly review and make necessary adjustments. Trusts may need to be modified due due to evolving financial circumstances or changing family dynamics (births, deaths, marriages, divorces). Periodic reviews hepsure ensure the trust achieves its intended purpose throughout your lifetime and beyond death.
Transferring Real Estate into a Trust in New Jersey
Transferring real estate into a trust in New Jersey serves as a solution to a variety of issues, including probate, managment, and asset property. The trust document detail the role of the trustee in managing the property.
Learn how to put real estate into a trust New Jesey in the following sections. arn why and how to transfer real estate into a trust in New Jersey.
Benefits of Transferring Real Estate into a Trust in New Jersey
Transferring real estate into a trust in New Jersey serves as a solution to a variety of issues:
Avoiding Probate: The real estate does not have to go through the probate process. This is particularly useful because without the trust real estate must go through probate prior to the closing to transfer clear ownership. Delays could cause the highest offers to back out, and if the probate was contested, the sale would be frozen until the contest is settled.
Avoiding probate could be vital in the deceased party owned multiple properties in different states.
Asset Protection: An irrevocable trust would limit creditors ability to placing a lien.
Control and Management of the Property: Trust documents can specify: (i) who and how the property would be managed before death and after death; (ii) distribution of sale proceeds; (iii) instructions if you become incapacited. Clear directions will limit family disputes.
Choosing an Appropriate Type of Trust
As throughly outlined above, each type of trust has its advantages and disadvantages. Irrevocable trusts place the property beyond the reach of creditors at the cost of the inability to alter the trust. On the other hand, a revocable trust can avoid probate but credits still can make claims. An experienced attorney estate planning is invaluable for the best decisionmaking.
Crafting Your Trust Document
Trust documents can be very long – over fifty pages in many cases!
The provisions of the trust however are critical to successfully placing real estate into a trust. Trust provisions should address the following:
List of Properties: Trust documents should identify and describe properties being transferred into the trust.
Selection and Powers of the Trustee: The trustee should be able to, or select a person able to, manage real estate. The trust document should detail the powers and duties that the trustee has when it comes to managing the real estate, for example to sell sell, lease, or mortgage the property. A trust document can also include specific instructions from the grantor concerning how the property should be used or maintained, and how and when it may be sold or transferred.
Death or Incapacity Instructions: The trust should outline what happens to the property upon the death or incapacity of the trustee and/or beneficiaries.
Distribution Provisions: These guideline describe how the trust assets including the real estate will be distributed among beneficiaries.
Moving Property Into The Trust
A deed must be drafted, signed and notarized, and delivered to be effect. Recording the deed with the county is vital.
Requirements to transfer real estate into a deed are:
- The deed must be in writing.
- The deed must be signed by the transferror.
- The deed must be acknowedged (grantor confirming before a notary they executed the deed willingly)
- Grantor (the person transferring the property) and grantee (the person to whom the property is being transferred) must be clearly identified.
- Accurate legal description with lot and block number and legal description (property address is insufficient).
- The deed must state the consideration, in other words, the amount being exhanged for the property.
- The deed must show a clear intention to transfer the property
- The deed must be delivered by the grantor to the grantee.
- Although recording the deed with the county is not technically required to be valid, it must be recorded with the county to demonstrate ownership otherwise future parties recorded documents will take precedence.
Selling Real Estate from a Trust in New Jersey
Selling real estate property in a trusts is not the same as traditional sales.
The difference is due to the abiding by any sale requirements in trust, as well as in the process of “clearing title” (i.e. being able to transfer ownership to the buyer not subject to any liens or claims of third-parties).
Trustees also must be mindful of their heightend duty to act in the best interests of the beneficiary – not reducing stress of real estate transactions.
Role of The Trustee in the Sale
As discussed above, trustees have a significant role in managing trust assets. For real estate, this likely includes overseeing each aspect of the sale, including setting up for sale, negotiating with potential buyers, and finalizing transactions. Trustee responsibilites for a sale may include the following:
- Review the Trust Document: Trustee should revisit the trust document to ensure the trustee is acting with authority during the sale process.
- Appraisal: Trustees may need to conduct an appraisal to ensure they are obtaining the true market value for their beneficiary.
- Marketing and Negotiation: Trustees hire a real estate agent who will advertise and show the property to potential buyers. The trustee has the responsibility of negotiating the sales price and terms.
- Review Purchase Offers: Once a buyer is found, the trustee reviews the purchase contract and, if acceptable, signs the agreement.
- Deal Activity: Trustee must make decisions during the sale, such as negotiating inspection, mortgage, and appraisal contingnecies.
- Clearing Title: Trustee must arrange for payment of any mortgages, delinquent taxes, or other liens that would “cloud” the buyer’s ownership.
- Close Documents: Trustee must sign the closing documents such as deed, affidavit of title, and tax forms.
- Distribution of Proceeds: Trustee must use or distribute the sale proceeds in accordance with the terms of the trust document, as well as state and federal law.
To sell a property from a trust in New Jersey, the trustee must provide, produce, draft, and sign a variety of contracts and form.
The trustee must produce documentation to satisfy the buyer’s attorney and title company of authority to transfer the real estate to the buyer. Necessary documents may also include listing agreements, seller discosures, contract of sale, deed and other documents at closing, settlement states identifying all closing costs.
Pricing the Property
Pricing for your real estate can significantly impacts the the speed of the sale (how quickly interested buyer’s will submit offers) as well as maximizing oversale sale proceeds to the beneficiaries.
Consulting a professional appraiser and real estate agent reduces risks of disputes relating to valuation of the property and sale process. The real estate agent can also apply strategies such as pre-listing repairs, staging, and social media marketing.
A quick off-market cash sale may be in the interest of the trustee, however it is not likely to be the interest of the beneficiary.
Selecting an Offer
Trustees should consider the following in selecting an offer: (i) offer price; (ii) type and amount of financing; (iii) waiver of contingencies such as appraisal and inspection; (iv) closing date; (v) motivation of the buyer to not “back out”; and (vi) size of the earnest money deposit; and (vii) any post-closing benefits such as allowing any occupants time to vacate after the closing.
Closing on the Sale
Closing on the sale of property in a trust in New Jersey in many ways is similar to other sales.
Buyer conducts a final “walkthrough” the night before or morning of closing. Sellers remove personal items from the premises. Buyer’s lender transfers funds to a settlement agent (usually a title company) which then distributes closing costs and other payments to parties such as the seller, real estate agents, attorneys, lenders, tax and mortgage pay-offs. Deeds/keys are exchanged for sale proceeds.The deed is then recording with the county.
Differences in sales when the real estate is transferred from a trust include the deed is drafted from the trustee to the buyer, as well as execution of documents and distribution of sales proceeds must comply with requirements of the trust document.
Trust Administration Services Available
Trust administration services are professionals that simplify and streamline trust management.
Hiring a trust administrator make sense if: (i) the trust is complex with multiple assets and beneficiares such that a lawy person may struggle to understand financial and legal issues; (ii) you and/or the potential trustee lack time; (iii) objectivity is needed to avoid family disputes.
A trust administrator’s primary responsibility is to manage the assets within a trust according to stipulations laid out in the trust document. This includes may include distributing assets, paying bills from funds within a trust, or filing tax returns.
A good trust administrator also excels at strategic decision-making concerning investments or changes in legislation that could impact how different types of trusts operate.
Trusts in New Jersey are more than just legal jargon. They’re tools for securing your assets and ensuring a smooth transition of wealth. The guide has walked you through the maze, from understanding what trusts are to exploring their types available in New Jersey. You’ve seen both sides of the coin – advantages that make trusts appealing and disadvantages that warrant caution.
Do you want to ensure your trust is drawn up to meet your goals and comply New Jersey’s legal requirements? Call us at 201-389-8275 or visit the Contact Us page for attorney assistance with setting up your trust.