Recently, an out of state client wanted to transfer two NJ properties into a revocable living trust. Both properties were subject to mortgages. The question asked of me was if the transfers were subject to NJ’s Realty Transfer Fee (RTF) based on the balance of the unpaid mortgages placed on the properties. Or could we escape this fee (tax!) under N.J.S.A. 18:16-5.11 (there is no RTF if the consideration stated in the deeds is less than $100 and the deed contains language confirming there is a mortgage but it is remaining the responsibility of the grantors and that is it not being assumed by the grantee/Trustee).
A revocable trust for the sole benefit of the grantor is not subject to RTF (NJAC 18:16-5.11).
The same provision states that the exemption is not applicable if the trust is for the benefit of other beneficiaries.
NJAC 18:16-2.2 provides, however, that mortgages or other liens and encumbrances which are not paid, satisfied, or removed are “legal consideration”. If these liens, mortgages remain after closing, in my opinion, the rule is clear – they are consideration and subject to the RTF.
So which regulation applies?
The answer is if the trust is for the benefit of a grantor and no one else, then a transfer of real estate to trust is exempt from the transfer tax.
N.J.A.C. 18:16-5.11 (a) is your exemption. It states: (a) A transfer of realty to a grantee in trust to hold the property for the exclusive use and benefit of the grantor is not subject to a realty transfer fee, since the rights of ownership are still completely enjoyed by the grantor as beneficial owner.
To discuss your NJ trust matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at firstname.lastname@example.org. Please ask us about our video conferencing or telephone consultations if you are unable to come to our office.
By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold Township, Monmouth County, NJ Trust Attorney