So Do I Still Need a Trust in NJ?

For New Jersey residents, the New Year delivered the scheduled increase in the New Jersey Estate Tax exemption from $675,000 to $2,000,000. Absent a change in the law over the coming year, the tax will be eliminated altogether at the outset of 2018. So many are likely asking the question, “Do I still need a trust?”

For those who have undertaken some form of estate tax planning, there may be no need to modify existing estate planning documents at all. The minimization of the New Jersey Estate Tax has typically been undertaken in one of two forms: (1) a Disclaimer Trust, or (2) an Applicable Exclusion Trust. These trusts can be part of a Will or a Living Trust.

Those who have a Disclaimer Trust do not need to change their Will or Living Trust in response to the increased exemption amount. The reason is that a Disclaimer Trust is merely an option for a surviving spouse. When one spouse dies, the survivor inherits the deceased spouse’s estate outright. The Disclaimer can be exercised to provide for the benefit of the survivor but exclude those assets from his or her taxable estate when he or she dies. For couples who have this form of planning, nothing needs to be done. When one spouse dies, the survivor merely transfers the assets of the deceased spouse into his or her name.

On the other hand, those who have an Applicable Exclusion Trust may need to change their Will or Living Trust. The decision whether or not to do so will reflect the reason why the Applicable Exclusion Trust was established in the first place. If it was established solely to minimize estate taxes, then the Will or Trust in which it was created should be modified to eliminate it. Unlike the Disclaimer Trust which is optional, an Applicable Exclusion Trust is mandatory and will be funded when one spouse dies whether the survivor needs it or not.

Yet if the Applicable Exclusion Trust was established for other reasons, it may be worth preserving. For example, it is a valuable tool in the event there are children from prior marriages or if each spouse has different testamentary wishes. In that event, the Applicable Exclusion Trust insures that the needs of a surviving spouse are met during his or her lifetime. However, when the survivor dies, the balance of the trust will pass to the desired beneficiaries of the first spouse to die rather than the beneficiaries of the surviving spouse.

In conclusion, there may still be a need for trust planning for many New Jersey residents. Proper counsel should be obtained before any decision is made to modify or revoke a Will or Living Trust that contains either of a Disclaimer Trust or an Applicable Exclusion Trust.


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