AVERY & AVERY
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Vol. L · No. I FOL. LIArticles

Avery & Avery, Esqs. Ridgefield, NJ Robert W. Avery, Esq.

What Is a Trust in NJ — Revocable, Irrevocable, Special-Needs

RW·A

By Robert W. Avery, Esq.

Founding Partner · Former Mun. Ct. Judge

By Robert W. Avery, Esq.

A trust is a legal arrangement where one party (the trustee) holds property for the benefit of another (the beneficiary) under terms set by the original owner (the grantor). NJ recognizes a wide variety of trust structures, each with specific purposes. The three principal types most NJ clients encounter are revocable living trusts, irrevocable trusts, and special- needs trusts. This post walks through them.

Trust framework walkthrough. Not legal advice. Free consultation: (201) 943-2445.

Revocable Living Trust

A revocable trust is funded during the grantor’s lifetime and can be amended or revoked at any time. The grantor often serves as the initial trustee. On the grantor’s death, the trust becomes irrevocable and the successor trustee distributes per the trust terms.

Use Cases

  • Probate avoidance — assets in a funded trust pass outside probate, simplifying administration and providing privacy
  • Incapacity planning — successor trustee can manage assets if the grantor becomes incapacitated, without need for guardianship
  • Multi-state real-estate — avoids ancillary probate in states where the grantor owns property

Limitations

  • Revocable trust does not provide asset protection during the grantor’s lifetime — the assets remain reachable by the grantor’s creditors
  • Does not provide tax avoidance — the trust assets remain in the grantor’s taxable estate

Irrevocable Trust

Once funded and signed, an irrevocable trust cannot be amended or revoked (with limited exceptions for trustee-modification provisions or court-approved modification under N.J.S.A. 3B:31-31 et seq.).

Use Cases

  • Asset protection — assets transferred to a properly- structured irrevocable trust are removed from the grantor’s reach and from creditors (subject to fraudulent-transfer rules)
  • Tax planning — assets removed from grantor’s taxable estate for federal estate-tax purposes
  • Generation-skipping planning — multi-generation wealth transfer

Limitations

  • The grantor permanently gives up control
  • Tax consequences on funding (gift tax may apply)

Common Irrevocable Trust Sub-Types

  • Irrevocable Life Insurance Trust (ILIT) — holds life insurance to keep proceeds out of the taxable estate
  • Generation-Skipping Trust — for multi-generation wealth transfer
  • Charitable Remainder Trust — income to grantor for life, remainder to charity

Special-Needs Trust

A special-needs trust holds assets for a beneficiary with a disability without disqualifying the beneficiary from means-tested government benefits (Medicaid, SSI).

Two Sub-Types

First-Party (Self-Settled) SNT

Funded with assets of the disabled beneficiary (e.g., a personal-injury settlement to a disabled child). Subject to Medicaid payback at the beneficiary’s death.

Third-Party SNT

Funded with assets of someone other than the beneficiary (e.g., a parent’s estate planning for a disabled child). No Medicaid payback at beneficiary’s death; remainder distributes per the trust terms.

Why It Matters

Without an SNT, an inheritance or settlement to a disabled beneficiary disqualifies the beneficiary from means-tested benefits. The SNT preserves benefits while supplementing the beneficiary’s quality of life.

Trust Funding

A trust is only as good as the assets transferred into it. Funding requires:

  • Real estate — deeds re-recorded to the trust
  • Bank accounts — re-titled or beneficiary-designation changed
  • Brokerage accounts — re-titled
  • Business interests — assignment / membership-interest transfer
  • Life insurance — beneficiary designation to the trust

A signed trust agreement without funding is largely symbolic.

Frequently Asked Questions

Do I need a trust?

It depends. Most NJ residents with modest estates and standard beneficiaries do fine with a will alone. Trusts add value for specific scenarios — probate avoidance, multi-state property, asset protection, special-needs planning, tax mitigation.

How much does a NJ trust cost to set up?

Revocable living trust: typically a few thousand dollars including the trust document and funding work. Irrevocable trust: more — depending on complexity. Special-needs trust: fact-specific.

Can I be the trustee of my own revocable trust?

Yes. Most revocable living trusts have the grantor as the initial trustee, with a successor trustee named for after the grantor’s death or incapacity.

Does a trust avoid NJ inheritance tax?

A revocable trust does not — the trust assets are still subject to NJ inheritance tax at death based on beneficiary class. An irrevocable trust (properly structured and funded outside the 3-year look-back) can remove assets from the inheritance-tax base.

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