A revocable living trust can be useful in estate planning, but in New Jersey, there are several downsides people should understand before setting one up.

Main Downfalls of Revocable Trusts in New Jersey

No Asset Protection

Assets in a revocable trust are still legally considered your assets because you retain control and can revoke the trust at any time.

• Creditors, lawsuits, or judgments can still reach those assets.
• They may also be subject to division in divorce or other legal claims.

This is different from irrevocable trusts, which can sometimes protect assets.

No Medicaid Protection for Long-Term Care

Assets in a revocable trust count as your resources for Medicaid eligibility.

• This means these trusts do not help you qualify for Medicaid for nursing home care.
• Trust assets must still be spent down before qualifying for Medicaid nursing home benefits.

This is a major limitation if long-term care planning is your goal.

No Estate or Income Tax Savings

A revocable trust generally does not reduce taxes:

• Assets are still included in your taxable estate and are subject to the NJ Inheritance tax.
• Income from trust assets is taxed under your Social Security number.

In other words, the trust does not provide tax advantages by itself.

Probate Avoidance in NJ is Unnecessary

One major reason people create revocable trusts, is to avoid probate. However:

• New Jersey probate is simple and inexpensive compared to many states.
• An attorney is not required to probate a Will.
• Fees to probate a Will run approx. $180-$200 vs. $2,500 to establish a trust
• Time to probate a Will can be less than 30 mins. – with a Surrogate's appt.

Higher Setup Costs and Complexity

Creating and maintaining the trust can cost more than a simple will because:

• All assets must be retitled into the trust (homes, all accounts, etc.).
• New deeds for real estate and bank and brokerage accounts are re-titled
• For a married couple, 2 trusts need to be created – one for each spouse.

If the trust is not properly funded (assets transferred), it will not work as intended.

You Will Still Need a Will

Even if you have a revocable trust:

• A “pour-over will” is typically required to capture assets not placed in the trust.
• If assets are not transferred to the trust, they can still go through probate.

The biggest downsides of revocable trusts in NJ are:

• No Medicaid or asset protection
• No tax benefits
• Less benefit because NJ probate is inexpensive and simple
• Higher setup costs and administrative work