What Is A Revocable Trust And Do I Really Need One?

A Revocable Trust is a legal document created during one’s lifetime that allows a person (called the “Settlor” or “Grantor”) to transfer assets to the Trustee(s) of a Trust. In most Revocable Trusts the Settlor is also the person named as Trustee. Pursuant to the terms of a Revocable Trust the Settlor will have the power to amend or “revoke” the trust during their life and upon their death all assets held in the Revocable Trust are then distributed according the terms of the Trust. The Settlor thereby remains in complete control of the assets placed in the Revocable Trust.

In New Jersey a Revocable Trust (sometimes called a Living Trust) is not absolutely necessary. The reason is that probate in New Jersey is not all that cumbersome or expensive. In New York, the probate process is somewhat more cumbersome and expensive – requiring the filing of an inventory of all probate estate assets and a filing fee is imposed based upon the value of the assets – thereby making the Revocable Trust a more popular estate planning option. For small to moderate size New Jersey estates a Revocable Trust is not absolutely necessary. However, there are some advantages that a Revocable Trust provides, including:

With a Revocable Trust you can give someone the power to amend the Trust if you become incompetent or mentally disabled. This can be advisable to react to unforeseen changes in the tax law.
With a Revocable Trust there is no interruption in the power to trade securities held in an investment account. The Revocable Trust will typically provide for a Co-Trustee or the appointment of a Successor Trustee, who can then continue to trade the stocks and bonds after your death. Without a Revocable Trust, you must wait to probate the Will and get letters testamentary issued before your Executor has the power to trade an investment account held in your sole name. This can take several weeks, and letters testamentary cannot be issued by law until 10 days after your death.
The Revocable Trust is a private document, whereas a probated Will is a public document which anyone can search for and make copies at the County Surrogate’s Office if they chose. Soon, Will information is likely to be on the internet for all to see.
In 2002 the State of New Jersey changed its tax laws to provide that estate tax waivers must be obtained for all assets if the total estate is greater than $675,000. The so-called “self–executing tax waivers”, which previously could be used for all estates as long as the beneficiaries were spouses, children and grandchildren, can no longer be used for estates greater than $675,000. The result is that one-half (1/2) of all bank accounts, stocks and bonds, and real estate cannot be sold or liquidated until the State of New Jersey issues tax waivers. This results in much delay. The Revocable Trust arrangement avoids this problem, since no such waivers are required for a Revocable Trust since title remains with the Revocable Trust, both before and after death.

The principal disadvantage of a Revocable Trust is that there are additional legal fees incurred upfront to create and fund the Trust. There is also a great deal of work involved in funding the Trust during your lifetime. Probate is not avoided unless you transfer all of your assets to the Trust while you are alive. In any case, with a Revocable Trust, you should always still have a Will, which provides that any assets still in your name at the time of your death will “pour” over to the Revocable Trust.