How Do Trusts Help You Save on Taxes?
Many people come to us curious (or
confused) about trusts and taxes. So, today’s article is going to sort it out
and clarify things for you.
There are two types of trusts, and each
have different tax consequences.
Revocable trusts, which are the far more
commonly used trusts, have no tax consequences whatsoever. A revocable trust
has your social security number as it’s tax identifier, and is not a separate
entity from you for tax purposes. It is a separate entity from you for purposes
of probate, meaning if you become incapacitated or die your Trustee can take
over without a court order, keeping your family out of court. But, until your
death, it’s treated as invisible from a tax perspective. At the time of your
death, if your revocable trust provides for the creation of irrevocable trusts,
then the tax implications will shift.
When you have an irrevocable trust,
either created during life, at death through a revocable living trust, or
through a will that creates a trust, that trust has its own EIN, or employer
identification number (also called a TIN or taxpayer identification number).
Generally, it pays income taxes on income earned by the trust, as if it’s a
separate tax paying entity.
Trust income is taxed at the highest tax bracket applicable to individuals as soon as there is over $12,950 of income, so in some cases a trust can be drafted to provide that the tax consequences pass through to the beneficiary and are taxes at his or her rates. We will often do this when creating a Lifetime Asset Protection Trust for a beneficiary, so that the trust can provide the benefits of credit protection from lawsuits, divorce, or even bankruptcy, but not have the negative tax consequence of the highest tax rates on very little income.
Of course, if you have a trust, and you
want us to review it for the income tax consequences to your loved ones after
your death, please contact us.
Now, let’s talk about estate taxes.
Currently, if you die with assets over $11.58M, then your estate will be
subject to estate tax on all amounts over that $11.58M at the rate of 40%. Yep,
40% will go to the government. You can mitigate these taxes, or even eliminate
them by using various planning methods, most of which are fairly complex, but
worth it if you can save your family that 40% estate tax.
If you are trying to figure out whether
an irrevocable trust, or a revocable trust or even a Lifetime Asset Protection
Trust is best for you and your beneficiaries, we can help you weigh that
decision and make the right choice for yourself and the people you love.
This article is a service of Amy Clemmons
Brown, an Arkansas licensed attorney. We don’t just draft documents; we ensure
you make informed and empowered decisions about life and death, for yourself
and the people you love. That's why we
offer a Family Wealth Planning Session,™ during which you will get more
financially organized than you’ve ever been before, and make all the best
choices for the people you love. You can begin by calling our office today to
schedule a Family Wealth Planning Session and mention this article to find out
how to get this session at no charge.
Comments
Post a Comment