An irrevocable trust may be an effective estate planning tool for New Jersey residents. It is called an irrevocable trust because the terms cannot be changed once the trust has been create. An individual may either create such a trust during his or her lifetime or use provisions in a will to create one upon death.
One of the benefits of providing for an irrevocable trust through a will is that a will may still be changed while a person is still alive. For a trust to be valid, it must have property transferred into it as well as be signed by its creator. Trust language should be specific enough for the trustee to follow correctly, and language may dictate how assets are to be invested or when a person may be entitled to funds within the trust.
A good reason to create an irrevocable trust is to reduce estate taxes. When an asset is gifted to such a trust, any appreciation or gains from that asset are not included in the estate. Instead, the beneficiaries will pay any taxes related to the appreciation of an asset when it is sold. The only consequence to the person making the contribution is a potential gift tax depending on how much was given to the trust.
There are many ways that trusts may be used as part of an estate plan. In some cases, they may be used to provide tax relief and protection from creditors. In others, they may be used as a means of controlling how and when a beneficiary can receive distributions. This could be important when a beneficiary might not be able to handle a lump sum inheritance under a will. An estate planning attorney can often describe other advantages of this type of a document.