What happens to an irrevocable trust if you leave NJ?
I thought irrevocable ususally means of course you cannot change the trust but also you put your assets in the trust, so now they are the trust assets, I guess you can still be the owner but are there limits with what you can do with the assets when put in an irrevocable trust? With revocable the assets are still yours to do what you want with them. I would not think it would matter where the trust is established. Will be following discussion.
You could opt to pay your taxes instead of trying to hide your assets.
max_weisenfeld said:
You could opt to pay your taxes instead of trying to hide your assets.
Irrevocable trusts are not even remotely the same thing as hiding assets. However, if you move assets into an irrev. trust, I would think you would be subject to annual gifting limits. On the other hand, irrev. trusts can be the beneficiary of life insurance plans which mean that the life insurance payout is not part of your estate.
Yes and no. There is an annual gift and a lifetime limit. The OP is concerned about the $675k inheritance tax. NJ has the most severe inheritance tax in the nation, so anywhere she goes in the country will be better. However, if she moves overseas, she has to investigate that country's laws. Assets are taxed where they are held.
This is a really complex question, and there are so many issues that we don't know an answer to: what will the trust hold? life insurance, real estate, securities? What is the goal of the OP? How much value is in the asset?
Once the OP signs the assets over to the trust, she/he looses complete control, the trust and trustee would need to pay any expenses. She needs to speak to an estate planning attorney, and I would add this question as well: can she/he use the annual gifting amount to pay for any costs that the irrevocable trust has.
Trusts are not cheap to set up, so I hope that she has enough assets to make it worthwhile.
Actually, if you set up a trust with family members as trustees, the cost is next to nothing. If you use a bank, you will pay an annual fee.
I would be concerned about handing over all my assets while I am alive. You lose control. Do you trust the persons who are now making deciions? We had an irrevocable trust established for our parents. They were no longer the owners and could not making any decisions on the trust assets. My sister made all decisions although all of the children were owners. I would be concerned about this. There are times where it could be good as the assets are not in your name, but who is in charge of the assets and how well do you trust them? It worked for us, but know they are no longer your assets. Revocable trusts you are the owners of the assets. Big difference. My understanding is that the assets are valued at time they are put in the trust and gains/losses are from that time forward to sale date.
The OP can set it up with the OP as the primary trustee and control the trust. Secondary trustee ifthe primary becomes incapacitated or died could be an heir. She won't lose control until this happens.
I think if you are your own trust's beneficiary in some states the trust fails. This is not DIY stuff.
https://en.wikipedia.org/wiki/Merger_doctrine_(trust_law)
My parents and in-laws both have all their assets in Living Trusts, one here in NJ. They are the trustees. But yes, definitely OP needs a legal expert to determine all the options and pros and cons for their specific situation.
If you have a good attorney, they should be able to address these questions. However, I would be careful about attorneys pushing trust arrangements. I'm not saying trusts don't have value, as they do. But setting them up is a big money-maker for attorneys, so be sure that your trust yours and that (s)he has your best interests at heart.
Irrevocable trusts have tax benefits but you cannot make changes and give up control. One of the control issues is who the trustee will be. Definitley get a lawyer and make sure you ask all questions. In a revocable trust you can be the trustee. I do not think you can be a trustee in an irrevocable trust, as you would not be giving up control.
And I am pretty sure a revocable trust will not offer the tax advantages that the OP may be looking for.
@rhw there are better tax benefits in an irrevocable trust federal and state. We went through this and did an irrevocable one for our parents. My Dad died a year last September and my mom last December we are in the process of distributing the trust. The benefits, are better, so yes the tax benefits are better, however in an irrevocable trust the taxes are trust rates which are must higher if gains are not distributed to the "owners" of the trust so that it becomes indiviual tax rates. The owners of the trust will not be the people who set up the trust. It is important that you trust your trustee to do the correct thing while you are alive and need the earnings. In the revocable trust my parents did not have file a tax form for the trust. So it is very important that you ask the attorney these questions and what you want the trustee to do.
How is the basis better in an irrevocable trust? Doesn't it take the lesser of the FMV or grantor's basis? Upon death, doesn't property held by the deceased or in a revocable trust get a step up in basis to the FMV?
@Steve, good point, I was not looking at it as an inheritance/death but that they are still alive so no bump up. If the irrevocable trust is step up correct, not as a gift, than the irrevocable trust will get the bump up in basis and according to how done, can be taxed at individual not trust rates.
ETA
There are two types of irrevocable trusts. Grantor and Non Grantor, Grantor Trust is probably what the lawyer is recommending. Get a second opinion on everything, it is irrevocable and
Aside from codes, etc. I have been reading.glimpse on understaning it. I can understand why a lawyer would recommend it. We decided it was best for our parents and have not regretted it. But then there were resons where it was best my parent gave up conplete control.
Either way the person who gives up control will not have any tax consequences.
http://www.foxbusiness.com/personal-finance/2013/04/29/why-irrevocable-trust-can-be-superior-to-gifting/
Our attorney has advised us to set up an irrevocable trust, since as NJ residents all of our assets (including our house and cars) above $675,000 would be subject to the NJ inheritance tax. What would happen if we leave NJ (or the USA, for that matterwhen we retire? Would it be a cumbersome or expensive thing to deal with for our heirs?