Living Trust Tax Planning
If you are considering a living trust as your primary estate planning document, you should be concerned about living trust tax planning if the total estate value for you and your spouse is greater than $3,500,000.
00.
This figure of $3,500,000.
00 is the amount the federal government allows you to pass to your heirs without assessing estate tax.
To see if this affects you add the value of your real and personal property along with your financial assets, retirement assets and death benefits on life insurance.
If you are above this amount then you should consider having a Credit Shelter Trust, also called a Bypass Trust included in your trust document as a way to minimize or eliminate estate taxes.
Many married couples have simple wills and leave all their property directly to the other.
Under this plan, the first to die does not use their estate tax exemption, therefore they lose it.
With wills the estate will also go through the court process called probate.
This process often is long and expensive.
With living trusts, you can utilize this exemption AND avoid probate.
For example if a husband and wife have $7 million in assets, one-half in each of their trusts, the first spouse to die can leave $3.
5 million to the other spouse in a credit shelter trust without estate taxes.
The surviving spouse then has $3.
5 million in his or her trust and the other $3.
5 million in the credit shelter trust of the deceased spouse.
Usually the surviving spouse is the primary beneficiary of the credit shelter trust, and will also be named as trustee.
During the remainder of the life of the surviving spouse, the income and the principal of the trust can be used for their health, education, maintenance and support.
After the surviving spouse dies, the assets can go to the children and will not be included in the estate of the surviving spouse.
The entire $7 million would pass to the family without any estate tax.
Now this is great living trust tax planning.
Without using this structure the estate tax on the total estate upon the death of the second spouse would be approximately $1.
5 million.
A bypass trust also if drafted properly, will be insulated from the claims of creditors and keeps the property in the family.
If the surviving spouse remarries, they will not be able to give trust property to the new spouse.
Whether you have an estate tax issue or not I suggest you use the revocable living trust as your estate planning document of choice.
If you are above the federal estate tax threshold, or the threshold of your state if it is lower than the federal limit, you should hire an attorney to help you with your living trust tax planning.
If you are below the estate tax thresholds, then I encourage you to learn how and to draft your trust yourself.
It is easy if you have the right tools.
00.
This figure of $3,500,000.
00 is the amount the federal government allows you to pass to your heirs without assessing estate tax.
To see if this affects you add the value of your real and personal property along with your financial assets, retirement assets and death benefits on life insurance.
If you are above this amount then you should consider having a Credit Shelter Trust, also called a Bypass Trust included in your trust document as a way to minimize or eliminate estate taxes.
Many married couples have simple wills and leave all their property directly to the other.
Under this plan, the first to die does not use their estate tax exemption, therefore they lose it.
With wills the estate will also go through the court process called probate.
This process often is long and expensive.
With living trusts, you can utilize this exemption AND avoid probate.
For example if a husband and wife have $7 million in assets, one-half in each of their trusts, the first spouse to die can leave $3.
5 million to the other spouse in a credit shelter trust without estate taxes.
The surviving spouse then has $3.
5 million in his or her trust and the other $3.
5 million in the credit shelter trust of the deceased spouse.
Usually the surviving spouse is the primary beneficiary of the credit shelter trust, and will also be named as trustee.
During the remainder of the life of the surviving spouse, the income and the principal of the trust can be used for their health, education, maintenance and support.
After the surviving spouse dies, the assets can go to the children and will not be included in the estate of the surviving spouse.
The entire $7 million would pass to the family without any estate tax.
Now this is great living trust tax planning.
Without using this structure the estate tax on the total estate upon the death of the second spouse would be approximately $1.
5 million.
A bypass trust also if drafted properly, will be insulated from the claims of creditors and keeps the property in the family.
If the surviving spouse remarries, they will not be able to give trust property to the new spouse.
Whether you have an estate tax issue or not I suggest you use the revocable living trust as your estate planning document of choice.
If you are above the federal estate tax threshold, or the threshold of your state if it is lower than the federal limit, you should hire an attorney to help you with your living trust tax planning.
If you are below the estate tax thresholds, then I encourage you to learn how and to draft your trust yourself.
It is easy if you have the right tools.
