A well-crafted estate plan can help you maintain control of your assets while creating an enduring legacy that promotes your values.
One of the greatest rewards of wealth is being able to share it with others. To help the people and causes you care about continue to thrive. That’s where a well-crafted estate plan that includes specialized trusts can help you maintain control of your assets and transfer them tax-efficiently, while creating an enduring legacy that promotes your values and guiding principles.
Trusts help you retain control of your assets – particularly in light of potential family strife over who gets what when you pass away. Marital and bypass trusts, for example, map out your inheritance plan and cannot be changed by a surviving spouse or your children after your death. Neither can wield undue influence over the other, and your wishes will be carried out as specified.
What if you have a minor child or young adult child who just isn’t ready for the responsibility of managing wealth? A trustee of your choosing can help bridge that gap when you are no longer around to do so.
Sometimes you need to protect your beneficiaries from themselves. Litigation, malpractice claims, creditors and divorce are examples of potential scenarios that should be considered when establishing estate plans and trusts. Remember, the time to take action is well before it’s ever needed.
Trusts also help minimize estate and gift tax liabilities. While the lifetime exclusion for federal estate taxes is quite high at the moment, that could change down the road. If your estate is valued at more than $11.2 million (the federal estate tax exemption amount for an individual in 2018), the balance could be subject to federal estate tax at rates as high as 40% or more. Proper planning through the use of certain types of irrevocable trusts can allow you to transfer assets that can then grow outside of your estate and thus avoid estate taxes.
A trust can help you minimize state transfer taxes as well. Some states have particularly high estate tax rates or low exemption amounts. It’s important to work with an estate planner familiar with your state’s laws and tax rates to determine if a trust would be an effective tool to help minimize your state estate tax liability.
With longer life spans comes the possibility that you’ll need assistance in your later years. Trust planning gives you the option of transferring assets to a revocable trust, naming yourself as both the beneficiary and trustee. You could then dictate in the trust document your detailed criteria for establishing diminished capacity, and appoint a successor trustee who would then assume management of trust assets on your behalf.
For disabled beneficiaries, a special needs trust might be the tool you need to preserve their eligibility for government benefit programs. This irrevocable trust enables you to leave assets to help meet the future needs of someone with a mental or physical disability, without disqualifying them from receiving federal needs-based assistance, such as Medicaid and Supplemental Security Income.
Currently, you may gift up to $15,000 ($30,000 for couples) per year to any number of people without triggering gift taxes. Gifts in excess of this amount are applied against your lifetime gift tax exemption, which is $11.2 million (double that for couples) as a result of recent tax changes. For larger gifts or donations, a trust may be just the thing to help you make the most of your assets, while benefiting your favorite charities.
A charitable lead trust, for example, could be funded with cash, investments (especially highly appreciated assets) or even life insurance and used to provide an annual benefit to the charity during your lifetime or a set period of time, while continuing to generate income and build principal. At the end of that term, the remaining balance in the trust is transferred to your beneficiaries. In addition, depending on the type of charitable lead trust, you may be able to take a one-time income tax deduction in the year the trust is funded. Its cousin, a charitable remainder trust, provides income to you or your beneficiaries first and passes on to your charity when the trust ends.
A living trust places your assets and property “in trust,” where they are then managed by a trustee for your benefit and then the benefit of your heirs. It allows you to avoid probate entirely because the property and assets are already distributed to the trust. If you utilize a revocable living trust, you may transfer ownership of some or all of your property to yourself in your capacity as trustee, so you don’t give up control over those assets. When you pass away, your appointed successor trustee will transfer your assets to the beneficiaries you named. As the name implies, you can change the terms of the trust at any time, even revoking the trust altogether if you wish.
Another benefit? You can avoid multi-state probates if you own property in more than one state. Living trusts aren’t subject to probate, so you can eliminate both the costs and potential delays associated with those court proceedings. Plus, the trust is private, a benefit that could bring comfort to your family during an inherently difficult time.
With a trust, you can establish a fund for your own support, protect assets from considerable tax liability, or make certain that your philanthropic goals are met. There are a number of different kinds of trusts designed to help you accomplish specific estate planning goals like caring for a loved one with special needs or ensuring a lasting legacy for your family. But they can get complicated, which makes expert advice essential.
Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. Raymond James does not provide tax or legal advice. You should discuss tax or legal matters with the appropriate professional.