By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold, NJ Estate Planning Attorney

I was recently asked whether a revocable life insurance trust is exempt calculation of any NJ Death Estate tax. N.J.S.A. 54:34-4(b) and (c) exempts property passing to or under “any trust” funded by life insurance. I have heard people say that it must be an irrevocable trust in order to avoid the estate tax, but the operative words “any trust” in that NJ statute seems to include revocable trusts.

Perhaps the confusion that New Jersey exempts “revocable” life insurance trusts is because of the federal tax exemption that requires such trust to be “irrevocable”.

Revocable insurance trusts were more common many years ago than they are now.

Life insurance payable to a named beneficiary is also exempt from NJ inheritance tax. At one time, there was a question as to whether life insurance payable to a testamentary trust (such as the credit shelter trust, or trusts for children) was exempt from inheritance tax as being payable to a named beneficiary rather than to the estate. To avoid any doubt, estates too small to warrant creating an insurance trust, some people created revocable trusts to receive the life insurance. The revocable trust didn’t have any assets during lifetime, but was merely the beneficiary of the life insurance. The Will poured the probate assets over into the revocable trust, and the revocable trust contained the dispositive provisions.

Finally, with a $5,430,000 (indexed) Federal estate tax exclusion amount and portability combined with New Jersey’s prospective elimination of the death tax, very few individuals create insurance trusts any longer. To the extent the life insurance is intended to replace the money the insured would have earned if he/she hadn’t died early, the family will use the money and much of it will be spend during the spouse’s lifetime. There aren’t very many people poor enough to need life insurance but rich enough to pay Federal estate tax. So there aren’t very many insurance trusts being created any longer.

There are other reasons for buying life insurance, even in estates large enough to pay estate tax. For example, someone might buy life insurance because the estate assets are illiquid (for example, interests in real estate or businesses that can’t easily be sold or borrowed against), or to fund a buy-sell agreement. In these cases, an insurance trust might be appropriate.

To discuss your NJ Estate Planning matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at  Please ask us about our video conferencing consultations if you are unable to come to our office.