You can call the shots long after you're dead and gone if you set up a trust while you're still around.
5 benefits of trusts
- Avoid estate taxes
- Safeguard privacy
- Protect assets for heirs
- Retain control
- Bypass probate
1. Avoid estate taxesWith estate taxation penalties of 45 percent, your heirs could miss out on nearly half of anything left in your estate beyond the current $2 million exemption. Using trusts, you can make sure that most or all of what you leave behind makes its way to the people or charities you desire, rather than to Uncle Sam.
"Very often, people with significant assets start to think about passing assets to the next generation in a tax efficient manner," says Lisa A. Schneider, an attorney at Gunster, Yoakley & Stewart P.A., in West Palm Beach, Fla., who specializes estate planning. "If their assets exceed credits against estate taxes -- in other words become taxable to the estate -- they would look at making irrevocable gifts via an irrevocable trust in order to hold these assets. There are varying types of irrevocable trusts."
|2007 and 2008||$2 million||45% in 2007 and 2008|
|2010||Tax Repealed||Tax Repealed|
While irrevocable living trusts escape estate taxes, there's a catch: You cannot undo them. They are a done deal. A "fait accompli." No turning back.
Avoiding estate taxes is a good reason to create an irrevocable trust, but the average person would consider other types of trusts, not for tax purposes, but for other benefits.
Find out about estate taxes in your state.
2. Safeguard privacyIf you do estate planning, your assets will be distributed either via trusts or through a will. The one you choose depends on how important you deem your privacy and the privacy of your family.
Wills are filed in the county courthouse and are open to public scrutiny. Trusts are private documents, the contents of which are only open to your beneficiaries.
"If a person has a living trust, their will just says, 'I leave all of my belongings to my living trust,'" says Marshall Jones, an attorney and accredited estate planner at RMJ Family Wealth Planning, in West Palm Beach, Fla. "It doesn't have all the provisions in it to provide for grandchildren and children or special needs cases or whether your spouse gets the income, et cetera."
Our experts recommend that you explain unequal distributions of assets or deliberate exclusions of heirs to avoid family fighting and legal battles. However, if you place such deeply personal disclosures in your will, they will become public knowledge.
Edward W. Gjertsen says he knows from firsthand experience that some investment firms plumb through these public records to drum up business. The Illinois chapter president of the Financial Planning Association and vice president of Mack Investment Securities, Gjertsen says that at one job early in his career he was instructed to obtain these records and hand them over to a financial representative, who would then contact a family member of the deceased.