Trust Matters
Many families have unique estate planning goals. One of the best tools for accomplishing those goals is a trust.
Why Create a Trust?
- To avoid or diminish federal or state estate tax payments through a transfer of ownership.
- To avoid probate, because a “living” trust may include testamentary provisions that allow for the disposition of the trust’s assets outside of your will.
- To shelter property from your beneficiaries’ creditors and, in some states, even your creditors.
- To allow the grantor to specify criteria for management of property after death. This can be useful if a beneficiary struggles with managing his or her financial affairs, or if you want a say in how a charity uses your funds.
- To allow the grantor to direct assets to particular relatives long after the original will is executed. For example, after a spouse from a second marriage dies, a trust could designate that assets pass to children from a first marriage.
One of the most common trusts is a family trust, also known as a credit shelter or bypass trust. You write a will which establishes a trust up to the amount of the federal estate-tax exemption. This trust will be used to support your family after your death. After your spouse’s death, the trust typically benefits or passes to the children. The assets in the trust, regardless of how much they gain in value, are not subject to the estate tax after your spouse’s death.
Maximizing opportunities
Thanks to recent changes in tax law, most couples will not be concerned about federal estate taxes since they can now transfer up to $10.68 million tax free (that is, $5.34 million per spouse). But some couples will still want to establish trusts for various non-tax reasons. These reasons may include professional management of the assets, a source of support for the beneficiaries and protection of the beneficiaries. Individuals and couples with philanthropic goals may want to consider how to give most effectively through their estate. Charitable giving during your lifetime may be more fulfilling because you can see your money put to good use and perhaps have greater control over its use. Certain types of trusts can help families build philanthropy into their estate plan and reduce their estate-tax obligations.
Gifting to individuals is another useful strategy for reducing your estate while you’re alive. In 2014, you and a spouse can give away up to $14,000 each to any individual without incurring transfer taxes. If you had, say, three children with three spouses and nine grandchildren, you, as a couple, could give away $28,000 in cash or other assets to each of those 15 family members and thereby reduce your taxable estate by $420,000 each year. If those assets grow in value after you give them away, that appreciation is also free of transfer tax because they are out of your estate.
Whatever your hopes and goals are for your legacy, it’s important to start planning well in advance so you can take advantage of the strategies available to maximize its value and produce the desired outcome. You’ve worked hard to be a good shepherd of your assets when you’re alive. There’s no reason they shouldn’t be well-managed long after you pass away. Through careful planning with a professional team — as well as open discussion with your family or other beneficiaries — you’ll ensure that your legacy continues to build for decades to come.
Your Regions Wealth Advisor can help you build a team of advisors to guide you through your estate planning and help you build the legacy you envision.
