Trusts can be created either during or after your lifetime. Trusts that are created after your lifetime are called testamentary trusts because they are established in your “last will and testament.” The trust is described in the will and all of the terms are often found in the will. In other situations, a testamentary trust can sometimes be created by referring to another document that actually creates the trust.
Like living trusts, testamentary trusts are overseen by a trustee and have specified beneficiaries. The trustee is bound by the terms of the trust and will distribute funds or property according to your specific instructions. This type of trust is often used by someone who is expecting a large life insurance payment or for those who have minor or disabled children.
Planning for the future and managing the distribution of your assets can be a detailed process. It is recommended to speak with an experienced New Jersey trust attorney to set up and handle a testamentary trust effectively. At The Matus Law Group, our knowledgeable trust attorneys can provide clear, tailored legal guidance to help you navigate these challenging matters, such as choosing a trustee. We are committed to helping you ensure that your estate is managed and distributed according to your wishes after your passing. Contact us today at (732) 785-4453 to schedule a consultation and discuss how we can assist you.
Advantages of a Testamentary Trust
A testamentary trust is an often-used estate planning tool because of the many advantages that it offers.
- Control over funding: One of the major reasons that individuals use a testamentary trust is that they want more control over how their loved ones will use their inheritance. For example, if you have a child who has poor spending habits, you can use the trust as a way to ensure that he or she will not squander their inheritance. In the case of a disabled child, a testamentary trust allows you to provide financial security for your child with someone else whom you can trust to actually control the funds.
- Tax advantages: In some cases, a testamentary trust can be structured to help minimize or defer estate taxes by making full use of available spousal and federal exemptions.
- Simplicity: Developing a testamentary trust is relatively easy to do. It can be a part of your will, so it is easy to incorporate the trust into a will while you are creating the will or as a later addition. Extra costs or fees are then often taken out of the trust itself, so there are few upfront costs.
One of the most beneficial aspects of a testamentary trust is that it can be completely tailored to your needs. It is extremely flexible and can be as simple or detailed as you would like. It fits well with the unique needs of those who have minor or special needs children.
| Advantages of Testamentary Trust | Description |
|---|---|
| Control over funding | Provides control over how inheritance is used, preventing beneficiaries from squandering assets, especially useful for those with financially irresponsible beneficiaries or disabled children. |
| Tax advantages | Offers potential estate tax avoidance and can provide tax benefits for beneficiaries, making it a useful tool for wealth preservation and minimizing tax liabilities. |
| Simplicity | Easy to establish as part of a will, allowing for customization to fit individual needs, with minimal upfront costs and the ability to adjust complexity based on preferences and specific circumstances. |
Do Testamentary Trusts Offer Any Privacy Advantages Over Outright Gifts?
When planning for the future, protecting your family’s privacy is often a significant concern. You may wonder if a testamentary trust provides better privacy than giving assets away directly in your will. Because a testamentary trust is created within your will, the will itself, including the trust’s terms, beneficiaries, and assets, becomes a public record through the probate process here in New Jersey. This means the details of who your beneficiaries are and what assets will go into the trust are not completely private.
However, there is a key privacy advantage that emerges after probate. Once the will is validated and the testamentary trust is established, its ongoing administration is generally private. Your appointed trustee will manage and distribute the assets according to your instructions without continuous court supervision or public filings. That said, privacy is not absolute. Court involvement may be required in cases of disputes or if judicial accountings are mandated, which could make some details public.
In contrast, an outright gift in a will is settled and distributed as part of the public probate record, with no ongoing administration to shield from public view. The key distinction is that the trust’s continued operation and future payments to beneficiaries remain private, while an outright gift begins and ends as a public record.
Deciding on the right structure for your assets requires careful thought. A New Jersey trust attorney can help you understand how these options apply to your personal circumstances and what they mean for your family’s privacy.
New Jersey Trust Attorneys
Christine Matus
Christine Matus is the founding attorney of The Matus Law Group and a leading voice in special needs and estate planning in New Jersey. Her legal career is backed by a long history of community service, board leadership, and public education initiatives across the state. She is particularly known for her advocacy on behalf of individuals with disabilities and her support of nonprofit organizations.
- Bar Admissions: NJ (1995), U.S. District Court (1995)
- Member: Ocean County Bar Association, Asian Pacific American Lawyers Association
- Speaker & author: Topics include OBRA 1993, nursing home rights, nonprofit law
- Volunteer: Mediator, Caregivers Inc., Ocean County YMCA
Kristine Carranceja-Gurski
Kristine Carranceja-Gurski combines her legal practice with a lifelong commitment to public service and education. Her work in estate planning is enhanced by a strong foundation in financial services and community outreach, making her an effective and approachable advocate for her clients.
- Admitted to NJ (2007) and NY (2008) Bars
- J.D. from Loyola University New Orleans
- Leader in pro bono advocacy and public legal education
- Involved in local PTOs, HOAs, and cultural organizations
Brayndi Grassi
Raised in Toms River and educated in New York, Brayndi Grassi brings both scholarly depth and hometown familiarity to her legal work. Transitioning from music law to real estate and trust law, she offers clients thorough, creative solutions rooted in a genuine care for her community.
- Author of legal scholarship on copyrighting tattoos
- Licensed in NJ (2015) and NY (2016)
- Guest speaker at international IP events
- Devoted to music, baking, and supporting local heritage
Disadvantages of a Testamentary Trust
The disadvantages of a testamentary trust are few and far between, but there are a few cons that you should consider before creating a testamentary trust.
- Costs related to maintenance: Although you will not pay the majority of the costs upfront, there are costs that you will need to consider for the sake of the beneficiaries and the trustee. For example, the trustee may be required to regularly report the trust assets or appear in court to make regular reportings. Legal fees for maintenance are also a factor that you may need to consider, depending on the nature of the trust.
- Problems with trustees: In a testamentary trust, the designated trustee has the option to turn down the role. That can mean that the probate court will name someone else to be the trustee. The trustee could end up being a complete stranger in some cases. It is important to discuss your plans with your prospective trustee to avoid this type of situation.
There may be other drawbacks to a testamentary trust that vary depending on your particular situation as well. Find out more by calling The Matus Law Group at (732) 785-4453.
Does a Testamentary Trust Avoid Probate in New Jersey?
You might be wondering if creating a testamentary trust in New Jersey helps your estate skip the probate process. The straightforward answer is no, it does not. A testamentary trust is created within your will, and because of this, it must go through probate. Your will is a public record, and the court oversees the process of distributing your assets as you have directed.
Under New Jersey law, your will must be submitted to the County Surrogate’s Court for the probate process to begin. This legal procedure authenticates your will and gives the executor the authority to act. Only after the will has been probated can the executor transfer your assets into the trust as you have instructed. Therefore, the assets designated for the trust must first pass through probate, which is a public process. This is an inherent part of how testamentary trusts function.
Making sure your estate is handled exactly as you wish involves many important details. A New Jersey trust attorney can help you establish a clear plan that aligns with your specific goals for your family and your assets.
What is the Biggest Risk Inherent in the Proposed Testamentary Trust?
A testamentary trust, by design, is created according to instructions outlined in a person’s will, and it only comes into effect after their death. This timing is crucial and brings with it the primary risk: the potential for the trust not to be executed precisely as the deceased intended.
The core of this risk lies in the clarity and completeness of the instructions left in the will. If these instructions are ambiguous or incomplete, there may be significant challenges in setting up the trust to fully reflect the deceased’s wishes. Additionally, since the trust cannot be established and reviewed by the person who made the will during their lifetime, any errors or omissions in the will cannot be corrected after the fact.
This can lead to disputes among beneficiaries or between beneficiaries and the trustee, who is responsible for administering the trust. Such disputes can not only delay the distribution of assets but also result in legal challenges that could potentially alter the intended effect of the trust.
Moreover, the effectiveness of a testamentary trust is heavily dependent on the skill and integrity of the executor of the will and the trustee appointed to manage the trust. If these individuals do not adhere closely to the legal and personal guidelines set out in the will, the trust’s administration may not align with the deceased’s original intentions.
For anyone considering setting up a testamentary trust, it is crucial to consult with a knowledgeable trust attorney who can help craft clear, comprehensive instructions and select trustworthy individuals to execute and manage the trust. This approach minimizes the risk of misinterpretation and mismanagement, helping to ensure that your wishes are honored.
New Jersey Trusts: Income Tax Implications
Taxes, like all things financial, are a concern for a lot of people. In New Jersey, trusts can have serious tax implications. The tax consequences for trusts will vary depending on which trust a person is using. Simple trusts, which are trusts that are required to distribute their income annually, are subject to different taxation than Complex trusts. Complex trusts do not have to distribute all their income within one year but can accumulate trust income year after year.
For tax purposes, the trust and its beneficiaries are typically separate entities. Beneficiaries must pay income tax on distributions they receive. The trust itself must pay taxes on any income it earns but does not distribute. It is critical to understand that trust income tax brackets are far more compressed than personal tax brackets. This means a trust can hit the highest tax rate on a much smaller amount of retained income, making professional tax planning essential.
Income that must be distributed to the beneficiary of a trust is subject to personal tax, regardless of whether it is actually received. The trust pays income tax on income that accumulates in the trust. The trust will receive a distribution deduction when the income passes to the beneficiaries, and the beneficiaries are required to pay tax on the distribution.
To learn more about the tax implications involved in your New Jersey trust, speak to an experienced New Jersey trust attorney at the Matus Law Group at (732) 785-4453.
Experienced and Compassionate Legal Assistance from The Matus Law Group
Planning for the future involves making thoughtful decisions about how your assets will be managed and distributed. A testamentary trust can provide clarity and security for your loved ones, especially if you have specific goals such as providing for minor children or addressing unique family needs. At The Matus Law Group, we are dedicated to offering clear, practical legal guidance tailored to your circumstances. Call us today at (732) 785-4453 to schedule a consultation and take the next step toward protecting your legacy.
