New Jersey Grantor Trusts May Now Allow for Tax Reimbursement to the Grantor for Taxes
Prior to May 8, 2013, a New Jersey "grantor trust" (i.e., a trust that remained income taxable to the grantor) could not reimburse the grantor for his or her income taxes without causing the trust to be includable in the grantor’s estate.
Effective for new trusts, the trustee may be given discretionary authority to reimburse the grantor without causing the trust to be included in the grantor’s estate. In particular, the new statute provides that this discretionary authority does not constitute a right of the grantor to receive income or principal (which right would otherwise cause the trust to be included in the grantor’s estate).
It is suggested that this discretionary authority be considered for all new New Jersey trusts. Existing trusts may be able to be "decanted" into new trusts that potentially can take advantage of this expanded trustee power to reimburse the grantor for taxes.