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Trust Administration

Before administering trusts, the “lingo” and types need to be addressed and understood. In its simplest form, trusts fall into 2 categories - “Living” or inter vivos (meaning during lifetime), and “Testamentary” meaning they don’t take effect until the death of the grantor. Trusts can spawn in testamentary documents, such as a Will (the most obvious) but testamentary trusts can form inside of a living trust upon the death of the grantor.

Within those 2 categories are additional subcategories, the most significant being Revocable and Irrevocable. All testamentary trusts are irrevocable. After all, short of a séance, if the grantor is dead, they can’t very well revoke the trust, can they? A trust formed during the lifetime of the grantor can potentially be revoked by the grantor – or it can possibly be of a sort that a grantor can not revoke. Obviously, if a grantor can not revoke a trust, it should be established with great care and for particular purposes.

Revocable Inter Vivos Trusts/Revocable Living Trust- While the gray haired practitioner will often denounce such tools (largely because they represent a decrease in that practitioner’s retirement stream), the RLT forms the core for many estate planners nationwide. It is a “super Will” - upon the death of the grantor, the RLT’s testamentary language looks virtually identical to a Will, however a Will does nothing while you are alive; conversely, the RLT has many living provisions, most importantly incapacity/disability protection. A Will does nothing while you’re alive; a Will does not protect you if you are incompetent or disabled. A living Trust, on the other hand, has built in safeguards in the event the Grantor is disabled.

Irrevocable Trusts - The grantor is able to modify or revoke the trusts at any time. Grantors of irrevocable trusts do not enjoy the same privileges - the concept with an irrevocable trust is to get the “thing” as far away from the grantor as possible - this provides protection from litigation for the trust assets, this removes those assets from the grantor’s estate for estate tax purposes, and can provide other advantages. The key to remember is such trusts are irrevocable to the grantor. Some states, like New York, have statutes which allow for the revocation of an irrevocable trust. New Jersey does not have such legislation. Note, that trusts are typically taxed at a compressed rate versus that of individuals, however the spread is relatively small, and it is only on income - by investing trust assets in income tax investments, such as insurance, the differential becomes irrelevant.

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