In some states, the information on this website may be considered a lawyer referral service. Please reference the Terms of Use and the Supplemental Terms for specific information related to your state.
Grow Your Legal Practice. Meet the Editors. Can I avoid estate taxes with a basic living trust? Start Your Living Trust Today! Answer: A basic revocable living trust does not reduce estate taxes by one red cent; its only purpose is to keep your property out of probate court after you die.
In turn, there are a number of strategies you can use to minimize what you owe or avoid estate taxes altogether. Below, we review a number of different ways you can avoid the estate tax if you expect your estate to owe.
One way to get around the estate tax is to hand off portions of your wealth to your family members through gifts. But after you pass away, they could become part of your estate, which is subject to taxation. To avoid having your life insurance proceeds taxed, you can create an irrevocable life insurance trust.
If you die within three years of making the transfer, your life insurance proceeds would still be considered part of your taxable estate. Another way to bypass the estate tax is to transfer part of your wealth to a charity through a trust. If you have a CLT, some of the assets in your trust will go to a tax-exempt charity. One of the best ways to move assets into an IDGT is to combine a modest gift into the trust with an installment sale of the property.
About half of that is tied up in an illiquid limited partnership, while the rest is composed of stocks, bonds, cash, and real estate.
Obviously, Frank will have a rather large estate tax bill unless appropriate measures are taken. He would like to leave the bulk of his estate to his four children. Of course, Frank could use a portion of his unified credit exemption each year, but he has already established a credit shelter trust arrangement that would be compromised by such a strategy.
The trust will take the distribution and use it to make an interest payment to Frank and also cover the cost of the insurance premiums. If there is not enough income to do this, then additional trust assets can be sold to make up for the shortfall.
Frank is now in a winning position regardless of whether he lives or dies. If the latter occurs, then the trust will own both the policy and the partnership, thus shielding them from taxation.
IDGTs have many uses, but an exhaustive analysis of their benefits lies beyond the scope of this article. Certain strategies may be employed to avoid the generation-skipping transfer tax as well. Those who are interested in finding out more about these trusts should learn about all the factors to consider in estate planning and should consult a qualified estate planning attorney as well.
Estate Planning. Income Tax. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page. These choices will be signaled globally to our partners and will not affect browsing data.
We and our partners process data to: Actively scan device characteristics for identification. I Accept Show Purposes. Your Money. Personal Finance.
0コメント