The $5 million exemption, adjusted for inflation, was made permanent as were the rules on portability of the exemption for married couples (i.e. $10 million per couple). Therefore, very few of us will have an estate tax liability. This fact seems to have foster the myth that trusts are now only required for the very wealthy, something that CNBC's article, “What's the difference between an inheritance and a trust?”, unfortunately continues to perpetuate. The truth is that the avoidance of estate tax was always only one of myriad reasons to create a trust. Most of those reasons remain very relevant, particularly as baby boomers begin to retire. A trust based estate plan is very definitely something you must consider.
Now that the estate tax issue is all but solved for most of us, I can focus even more of my attention on how to assist my clients and their beneficiaries avoid paying unnecessary income and capital gains taxes. A properly drafted trust can be the perfect vehicle to ensure that inherited assets not only receive a step-up in cost basis but that this inheritance is provided with much needed asset protection, something likely needed in our litigious society. The proverbial having your cake and eating it too scenario that a trust provides is what makes it such an invaluable estate planning tool.
A trust is also one of the most powerful methods of managing assets, not just for the Trustmakers but for their children and other beneficiaries, both during the Trustmakers’ lifetime (incapacity) and at their death. A trust makes it possible to transfer assets to children and other beneficiaries in a controlled manner, allowing the Trustee to manage how to make assets available to beneficiaries regardless of what might put those assets at risk; think special needs, creditor issues or divorce. Even if these issues did not existed when drafted, nevertheless, the trust provides solutions.
As it is with any plan in life, when creating an estate plan you must first examine your goals and objectives. Then sit down with an experienced estate planning attorney to see what types of trusts can help you meet those goals. We will be happy to send you a “Estate Planning Priorities Quiz” or you may register online for a consultation. Join us for one of our workshops so that you can stay informed of important topics to you and your loved ones.
Reference: CNBC (July 6, 2016) “What's the difference between an inheritance and a trust?”