Last Updated October 29, 2017: Can a Trust Reduce the Death Tax?
From Our “Ask a Question” mailbag: Can a Trust Reduce the Death Tax?
“I have heard that if I form a trust, I can help reduce the federal estate tax or other Death Taxes due at my death. Is that true?”
There are Many Different Types of Trusts.
There are many types of trusts. Some help reduce the federal estate tax, and others do not.
Revocable Trusts; A Good Tool, but Does Not Reduce Death Taxes.
For example, a Revocable Living Trust is a useful tool for many reasons. A Revocable Trust is an excellent tool when estate planning for Alzheimer’s and Dementia But, it does nothing to help reduce the federal estate tax.
Irrevocable Trusts; Good Tools that Can Reduce Death Taxes.
An Irrevocable Trust is a trust that you cannot revoke. Though there is a multitude of Irrevocable Trusts to address a multitude of planning situations, these are your tools if avoiding Death Taxes is the goal. Typically, you form an irrevocable trust, place assets in the trust from which you cannot get the asset back.
For example, a standard trust used to reduce the federal estate tax is the Irrevocable Life Insurance Trust. These trusts can vary greatly, but their usual goal is to remove your life insurance from your taxable estate. Eliminating life insurance from your taxable estate can provide tremendous savings. This is because the federal estate tax rate is 40% (in 2017).
Removing $1,000,000.00 to an Irrevocable Life Insurance Trust can provide a $400,000 savings. There are other trusts, such as GRATs, SLATs and Charitable Remainder Trusts that can also reduce the federal estate tax if used correctly.
Complex Tools in Need of Skilled Application.
To help you sort out which trust, if any, would help you, I would need to know (among other things) your assets, their ownership structure, their approximate value and your estate planning goals. It takes time and experience to apply all these factors correctly.If you would like to know more, please feel free to set up a free consultation.
In conclusion, in this Post, I tried to answer the question, “Can a Trust Reduce the Death Tax?” So, let me know how I did. Comments and questions are welcome!
If you have further questions about Irrevocable Trusts as part of an Estate Plan, or any other questions about Estate Planning, feel free to contact our office for a free consultation.
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Author, Peter Klenk, Esq.