Accumulating wealth may be your first objective as a businessperson. After this has been accomplished, you must take steps to preserve your hard-earned wealth. Indeed, there are various different forces at work that could erode your financial legacy. One of them is the federal estate tax.
Can a trust mitigate your estate tax exposure and preserve your family wealth? Let’s endeavor to answer this question.
Different Types of Trusts
There are different types of trusts. If you ask if a golf club can be effectively used to drive a golf ball over 200 yards the answer would be yes, but you have to use the right type of club. The same type of situation exists with regard to the question of whether or not a trust can mitigate estate tax exposure.
First off, let’s look at revocable trusts. Revocable living trusts are very popular. These trusts are largely utilized to facilitate asset transfers outside of probate.
When you convey assets into a revocable living trust you retain incidents of ownership. In fact, this is a positive for many people. You don’t have to surrender control of assets that you place into a revocable living trust.
As the grantor of the trust you can act as the beneficiary and trustee while you are still living. You have the right to give yourself monetary distributions out of the trust. You can do whatever you want to do with assets that have been conveyed into the trust.
In fact, you can even revoke the trust altogether since it is, in fact, a revocable trust.
Because you retain all of this control, assets that are held by a revocable living trust are subject to the estate tax after you pass away.
On the other hand, there is such a thing as an irrevocable trust. Things work in the reverse with this type of trust. You as the grantor are surrendering incidents of ownership when you convey assets into an irrevocable trust.
As a result, irrevocable trusts are used in the field of estate planning to gain estate tax efficiency.
Wealth Preservation Strategies
The amount of the unified federal estate/gift tax exclusion in 2014 is $5.34 million. If your assets do not exceed this amount, you don’t have to concern yourself with tax efficiency strategies.
However, if you have been able to accumulate wealth that exceeds the amount of the unified exclusion you should take steps to mitigate your exposure. Conveying assets into an irrevocable trust of some kind may be part of the plan.
Our firm has assisted many high net worth families here in the greater Cincinnati area. Should you be interested in discussing wealth preservation strategies with a licensed estate planning attorney, feel free to contact us to schedule a consultation.