As part of the estate planning process, many New Jersey families and individuals use trusts. There are various types of trusts in estate planning used to protect assets, support loved ones, and establish clear plans for the future. They exist because you can customize one to meet your specific needs.
At Willis Law Group, we help clients plan for the future, focusing exclusively on estate planning and elder law. We offer one-hour initial meetings, during which we come prepared with potential solutions to make the most of our time together. Our goal is to prioritize consistency, clarity, and continuity to build strong relationships with our clients.
What Is a Trust?
A trust is a legal arrangement that divides property rights. The person who creates and places assets into the trust is known as the grantor. They select someone to manage the assets, called the trustee, on behalf of the named beneficiaries who will receive financial benefits from the trust.
To create a trust, the grantor drafts and signs a trust document, names a trustee, and transfers property into the trust, funding it. After the transfer, the trustee manages the trust assets according to the instructions provided by the grantor in the trust document. These instructions explain when the beneficiary may receive money, how the trustee should invest the assets, and which protections apply to the trust property.
What Are the Different Kinds of Trusts?
Two major distinctions appear in almost all trusts: whether the trust allows changes, referred to as revocability, and whether it takes effect during the grantor’s lifetime or after their death. Most trusts have some combination of those two distinctions.
Revocable vs. Irrevocable Trusts
Revocable trusts allow the grantor to change instructions, replace the trustee, or terminate the trust altogether. Grantors often serve as the trustees of their own revocable trust while alive. Revocable trusts can avoid probate, maintain privacy, and simplify property management.
An irrevocable trust does not allow changes after the grantor creates it. The grantor gives up control. In return, the trust may offer benefits such as protection from creditor claims, Medicaid planning advantages, or opportunities for federal estate tax planning.
Living vs. Testamentary Trusts
Living trusts take effect during the grantor’s lifetime and can be revocable or irrevocable.
Testamentary trusts begin only after the grantor’s death. The person’s will generally explains the trust arrangement, including who the trustee is and the terms they must follow.
Why Do People Create Trusts?
Trusts are highly customizable and can vary widely. People frequently use trusts to:
- Protect assets,
- Provide long-term support for a loved one with a disability,
- Set spending rules for young or financially irresponsible beneficiaries,
- Prepare for Medicaid eligibility,
- Keep financial matters private,
- Avoid probate court,
- Tax plan,
- Prevent mismanagement of an inheritance, and
- Support charitable causes.
A person’s goals inform which types of trusts for estate planning they might use.
What Are the Different Types of Trusts?
While trusts vary in their revocability and creation time, there are several common structures.
Trusts for Long-Term Care and Medicaid Planning
Some trusts help families prepare for health and long-term care costs, such as:
- Medicaid Asset Protection Trusts—move assets out of countable resource limits for Medicaid purposes, protecting them from Medicaid spend-down rules;
- Miller Trusts (Qualified Income Trusts)—route excess income into a trust so an applicant can meet Medicaid income limits; and
- Irrevocable Income-Only Trusts—grantor retains income produced by trust assets while the trust protects the principal under specific Medicaid conditions.
These trusts involve detailed rules and often require early planning.
Trusts for Individuals with Disabilities
Trusts can also preserve benefits while supporting someone’s long-term well-being, such as:
- First-Party Special Needs Trusts—hold a beneficiary’s funds while letting the beneficiary qualify for certain government benefits;
- Third-Party Special Needs Trusts—hold assets given by parents or relatives and preserve eligibility for needs-based programs; and
- Supplemental Needs Trusts—pay for therapy, recreation, education, transportation, and other quality-of-life needs.
These trusts allow you to provide support without risking eligibility for essential public benefits.
Trusts for Children and Young Beneficiaries
Parents and grandparents can also use trusts to protect inheritances for minors or young adults, through, for example:
- Minor’s Trusts—hold assets until the beneficiary reaches a specific age;
- Section 2503(c) Trusts—a type of minor’s trust that accepts gifts that qualify for the federal annual gift tax exclusion and releases funds to the child at adulthood; and
- Education Trusts—restrict trust funds to educational expenses such as tuition, books, and housing.
These trusts provide for and guide young people through important financial transitions.
Trusts for Asset Protection and Control
People can also create trusts to protect wealth from risky spending or financial instability, such as:
- Spendthrift Trusts—prevent beneficiaries from incurring debt based on their trust interest and block creditors from reaching trust assets;
- Discretionary Trusts—give the trustee authority to decide when to make distributions; and
- Domestic Asset Protection Trusts—provide specific creditor protections.
These structures help people safeguard their assets while still benefiting from them.
Trusts for Married Couples
These trusts help couples control what happens to their property and protect both spouses:
- Marital Trusts (A Trusts)—provide income or principal to one spouse after the other dies;
- Bypass Trusts (B Trusts)—preserve assets for children and reduce federal estate taxes for larger estates or couples with multistate property ownership; and
- Qualified Terminal Interest Property (QTIP) Trusts—give income to the surviving spouse but ensure assets pass to beneficiaries, including children from earlier marriages.
These trusts work especially well for blended families and complex financial situations.
Trusts for Charitable Giving
You can also use trusts to support charitable causes.
Charitable Remainder Trusts pay income to the grantor or another beneficiary for a specified period, then distribute the remaining assets to a charity. Charitable Lead Trusts direct income to a charity for a set number of years, then pass the remainder to loved ones that the grantor identifies in the trust document.
These trusts help support causes while also achieving tax-efficient planning.
Ready to Create a Trust? Willis Law Group Can Help
If you want guidance on the kinds of trusts you can create and benefit from in New Jersey, Willis Law Group is ready to help. Our organized processes, consistent support, and strategic leadership from a former prosecutor with deep knowledge of elder law help us create strong, thoughtful plans.
Contact Willis Law Group today to build your plan.
