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Trusts are an important part of many estate plans, but understanding the different types of trusts can be confusing. Terms such as revocable trust, living trust, and family trust are sometimes used interchangeably, even though they can describe different characteristics of a trust.
Understanding the differences between these types of trusts can help you determine which type may fit your estate planning goals. Because trusts can have significant legal, financial, and tax consequences, it is important to work with an experienced New Jersey estate planning attorney before creating or changing a trust.
What Is a Revocable Trust?
A revocable trust, also called a revocable living trust, is a trust that the grantor can generally amend, change, or revoke during their lifetime.
The grantor transfers assets to the trust and names a trustee to manage them. In many revocable living trusts, the grantor serves as the initial trustee and continues to use and control the trust assets during their lifetime. The grantor can also name a successor trustee to take over management if the grantor becomes incapacitated or after their death.
Benefits of a Revocable Trust
One of the primary reasons people establish a revocable trust is to provide a plan for managing and distributing assets without relying entirely on the probate process.
Assets properly transferred to a revocable trust generally pass under the trust’s terms rather than under a will. This can allow the successor trustee to administer those assets without probate.
A revocable trust can also provide a plan for managing assets if the grantor becomes incapacitated. Rather than requiring a court proceeding solely to determine who should manage the trust assets, the successor trustee can generally step in under the terms of the trust.
However, creating a trust alone does not accomplish these goals. Assets generally need to be properly transferred or otherwise coordinated with the trust for the plan to work as intended.
Can a Revocable Trust Be Changed?
Generally, yes. As its name suggests, a revocable trust can be amended or revoked while the grantor has the legal capacity to do so. This flexibility can make a revocable trust useful for people whose financial circumstances, family relationships, or estate planning goals may change over time.
What Is a Living Trust?
A living trust is a trust created during the grantor’s lifetime. The term refers to when the trust is created, rather than whether it can be changed. A living trust may be revocable or irrevocable. This means that both revocable and irrevocable living trusts are possible.
For example, a person may create a revocable living trust, serve as the trustee during their lifetime, and name a successor trustee to manage the trust after their death or incapacity. The trust document establishes how the assets should be managed and distributed.
Revocable Living Trust vs. Living Trust
The terms can sound similar because they overlap. A living trust is created while you are alive. A revocable trust can generally be changed or revoked by the grantor. A revocable living trust is both created during the grantor’s lifetime and generally amendable or revocable while the grantor has legal capacity.
An irrevocable living trust, by contrast, is created during the grantor’s lifetime but generally cannot be changed or revoked in the same way.
What Is a Family Trust?
A family trust is generally a trust created to benefit family members, such as a spouse, children, grandchildren, or other relatives. Unlike “revocable” or “living,” however, “family trust” does not refer to a specific legal structure.
A family trust can be structured in different ways depending on the family’s goals. It may be revocable or irrevocable, and the grantor may establish different provisions for managing assets and distributing them to beneficiaries.
For example, a family may establish a trust to provide for children or grandchildren while setting conditions for when and how beneficiaries receive trust assets.
The trustee manages the property in accordance with the trust document and applicable law. Depending on the structure, the trust may continue for years or even generations.
Why Create a Family Trust?
Families may use trusts for a variety of estate planning purposes, including:
- Providing for children or other family members.
- Establishing rules for how and when beneficiaries receive assets.
- Planning for beneficiaries who are minors or who may need assistance managing inherited property.
- Managing assets for multiple generations.
- Creating a structured plan for distributing family wealth.
The appropriate structure depends on the family’s assets, relationships, beneficiaries, and long-term goals.
What Is the Difference Between a Revocable Trust and a Family Trust?
The primary difference is that “revocable” refers to the ability to change or revoke the trust, while “family” generally refers to who the trust is intended to benefit.
A revocable trust could be established primarily for a spouse or children and therefore function as a family trust. Likewise, a family trust could be structured as either revocable or irrevocable.
This distinction is important because choosing a trust is not simply a matter of selecting one category from a list. An estate plan can combine different trust characteristics to address specific goals. An attorney can review your circumstances and explain which structure may be appropriate.
Do Trusts Avoid Probate in New Jersey?
One of the most common reasons people consider a revocable living trust is to avoid probate of assets properly titled in the trust.
When a person dies, assets held in a properly established trust generally pass according to the trust document rather than through the probate process. New Jersey also recognizes that property held in a bona fide trust is transferred independently of the probate estate.
However, not every asset automatically becomes part of a trust simply because the trust document exists. Funding the trust and coordinating other assets with the overall estate plan are important parts of the process. A will, beneficiary designations, jointly owned property, and other estate planning documents may also play important roles.
Frequently Asked Questions About Trusts in New Jersey
Is a revocable trust the same as a living trust?
Not exactly. A living trust is created during the grantor’s lifetime, while a revocable trust can generally be changed or revoked by the grantor. A trust can be both revocable and living, which is why the term “revocable living trust” is commonly used.
Is a family trust revocable or irrevocable?
A family trust can be either revocable or irrevocable. “Family trust” generally refers to the people intended to benefit from the trust, rather than to whether the grantor can change or revoke it.
Does a revocable trust avoid probate in New Jersey?
Assets properly transferred to a revocable trust generally pass under the trust’s terms rather than through probate. However, simply signing a trust document does not automatically transfer every asset into the trust.
Can I be the trustee of my own revocable living trust?
Yes. A grantor will often serve as the initial trustee of a revocable living trust. The trust can also name a successor trustee to manage the trust if the grantor becomes incapacitated or after the grantor’s death.
Do I still need a will if I have a trust?
Often, yes. A trust does not necessarily replace every other estate planning document. A will can address property that was not transferred to the trust and may serve other important estate planning purposes. Your attorney can help coordinate your will, trust, beneficiary designations, powers of attorney, and other documents.
What type of trust is best for my family?
There is no single trust that is appropriate for every family. The right structure depends on factors such as your assets, beneficiaries, tax considerations, family circumstances, and goals for managing and distributing your property.
Create the Right Trust for Your Estate Plan
Revocable trusts, living trusts, and family trusts are not necessarily separate alternatives. The terms describe different characteristics of a trust, and a single trust can have more than one of those characteristics.
A revocable living trust, for example, can provide flexibility during your lifetime while establishing a plan for managing and distributing trust assets after your death. A family trust may provide additional structure for passing assets to children, grandchildren, or other family members.
The right estate plan depends on your circumstances and goals. The Simone Law Firm, P.C. can help you understand your options and determine how a trust may fit into your broader estate plan.
Contact The Simone Law Firm to schedule a consultation with a New Jersey estate planning attorney.
Author Bio
Michael Simone is the Founder and Managing Partner of the Simone Law Firm, an estate planning law firm in Cinnaminson, NJ. With more than 20 years of experience in criminal defense, he has represented clients in a wide range of legal matters, including estate planning, elder law, probate, real estate, and business law.Michael received his Juris Doctor from the Rutgers University School of Law and is a member of the New Jersey Bar Association.