Higher Exclusion Limits and Trusts
Now that the federal estate-tax exemption is $5.49 million for individuals in 2017, it’s estimated that 99% of all estates can gift all assets to heirs free of federal estate taxes without the use of trusts. But the value of many kinds of trusts lies not only in their capacity for sheltering you from estate taxes, but also from other kinds of taxes and helping you control how your assets are distributed and spent by beneficiaries. Here is a short list of some of these purposes:
Income and capital gains tax advantages. While shielding your heirs from estate taxes is the principal benefit of trusts, charitable trusts can also reduce your income and capital gains tax liability. Trusts can also help you or your heirs avoid being subject to capital gains taxes on the sale of highly appreciated assets.
Who gets what and when? Some trusts are designed chiefly to give you control over who receives what portion of your assets after you die. For example, a Qualified Terminal Interest Trust (QTIP) is useful for people who have children from a first marriage and step-children from a subsequent marriage. The owner of a QTIP can provide for the income needs of the second spouse for as long as he/she lives and then transfer trust assets on his/her death to his/her children. Similarly, charitable trusts give you the choice of donating the income from assets you transfer to the fund but keeping those assets in your family, or using the income for your own benefit, then donating the principal or property after you die.
Spending for specific purposes or at specific ages. Do you want your children to be supported after you die, but want them to only spend the money for their educations? Do you want them to have limited access to the funds until they’re 30 or in five-year intervals? Various trusts can help accomplish these objectives.