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Investment Planning |
The Living Trust
Estate planning is an important subject that can sometimes be difficult to address.
The estate tax may affect your loved ones if your assets, including your home, exceed a certain limit. For 2009, the triggering amount, known as the estate tax exemption, is $3.5 million. Upon your death, the assets in your estate above $3.5 million will be taxed at a maximum rate of 46%. In most cases, you can pass along an unlimited amount of assets to your spouse during life or at death. However, you may lose your lifetime exemption if you don’t create a living trust.
Planning is needed to transfer assets to non-spouse heirs, including children. A revocable living trust can shield up to $7 million in assets from a couple’s taxable estate, passing on significant wealth to heirs estate tax-free.
Here’s how this idea works: the Smiths establish The Smith Living Trust. When Mr. Smith dies, a second trust is established to shield assets from estate tax. This trust is funded with assets equaling the amount of the current estate tax exemption ($3.5 million in 2009; in 2010 the estate tax is temporarily eliminated). Upon Mrs. Smith’s death, her estate receives a $3.5 million exemption, making a total of $7 million for the family. With a properly funded living trust, each spouse receives an exemption. Without a trust, the couple would have only one exemption.
Trusts provide many non-tax benefits, too. Privacy, ease of transferability to heirs, reduced administrative costs, and faster estate settlement are also reasons to establish a revocable living trust during your lifetime.
Tips Disclaimer
These tips contain information that may change over time as a result of new tax legislation. Although we make efforts to keep this information current, you should check with your tax advisor before taking action based upon any information contained in these tips.