Living Trusts – Do They Reduce Estate Taxes?


When they are properly written, they do it! Although life trusts have nothing to do with property tax bills, they can be well designed to reduce these inheritance taxes or avoid them altogether. A couple can transfer ownership of their property to a trust and then act as trustees of that document. The husband and wife can both act as co-trustees of the property, so that when one spouse dies, the other can still manage the living trust and; avoid expensive estate tax bills

Why is this so? Why is the other spouse not taxed for the property that his spouse has left to him? The reason is that the couple's property is in fact still the property of the trust and not the surviving spouse. In case of death of a spouse who is also a co-trustee, there remains another who can manage the living trust. As a result, the property in question will have either a reduced tax or no tax, since ownership of the property is transferred to the matrimonial trust or AB trust. If the amount shown in the AB trust is less than the federal estate tax threshold, the surviving spouse does not need to pay the estate tax.

Here is an example. Suppose that a couple has a property valued at $ 1,500,000. If a living trust has not been established and a spouse has died, the surviving spouse may be taxed in the amount of $ 825,000, which is 55% of the total value of the deceased. property. However, when a living trust is in place, the surviving spouse will not be asked to pay for that amount. Indeed, only half the value of the property is subject to the estate tax since it is the only part owned by the other deceased spouse. That half, $ 750,000, is part of the $ 1,000,000 property tax exemption; thus, no tax will have to be paid.

The surviving spouse can continue to manage the property and name its beneficiaries in the event of death. When the surviving spouse dies, his $ 750,000 will not be taxed because it falls below the current tax exemption threshold. However, the tax brackets may change over time, so it is best to keep up to date with the tax laws in effect.

In addition to reduced inheritance taxes, living trusts are primarily created to preserve privacy, avoid probate and estate planning in the event of death or disability. Unlike the last public will, a living trust is private and will not be brought to justice. Only you and the beneficiaries will know it. therefore, protect the privacy of the family. Most importantly, expensive hearings can be avoided with fully funded life trusts.

A living trust offers so many benefits not only to the beneficiaries of its creator, but also to the creator / trustee himself. He may be able to properly plan his assets and assign people who will take care of him in case of disability. Living trusts are an aspect of estate planning that provides a secure future for your loved ones. They help avoid inheritance taxes, eliminate the hassle and expense of probate hearings and, more importantly, plan your property according to your wishes.

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