Hyden, Miron & Foster, PLLC Law Blog

Saturday, September 23, 2017

Reducing Your Taxable Estate with Trusts

How can I use trusts to reduce the taxes my estate will pay?

You work hard throughout your lifetime to set aside money and assets for your loved ones. When you die, the last thing you want is to see your property liquidated to pay off costly estate taxes. Estate taxes are historically expensive, costing your estate somewhere between 45 and 55 percent. Estate taxes must be paid in cash, often requiring the liquidation of assets. However, if you plan ahead, you can reduce or eliminate your estate taxes by using trusts and other estate planning methods.

Who Will Pay Estate Taxes?

The estate tax is a tax on your right to transfer your property at death. It requires an accounting of everything you own. Currently, only estates with gross assets and taxable gifts exceeding $5.45 million will need to pay estate taxes. While this seems like a hefty sum, you may be surprised when you tally the value of your property, stocks, bonds, cars, and the like. Further, estate tax exemptions are subject to change. Depending on the political environment in the next few years, smaller estates could be subject to the estate tax.

Irrevocable Trusts

There are dozens of types of trusts, but in order to remove assets from your estate for purposes of avoiding the estate tax, the trust must be irrevocable. An irrevocable trust transfers the ownership of the assets placed within it. Rather than being owned by you, assets in the irrevocable trust are owned by the trust. You can, however, still benefit from the assets within the trust during your lifetime.

There are several options when it comes to an irrevocable trust. One such type of trust is a qualified personal residence trust. This trust is designed to hold ownership of your home for a certain period of time, ranging from two to 20 years. When the term expires, the home is owned by the trust for eventual distribution to named heirs. You, as the grantor, can continue to use the home as desired.

This is just one of numerous irrevocable trusts that could help you to avoid paying estate taxes. Contact an estate planning lawyer today to review your options and get started creating your comprehensive estate plan.

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