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Estate Planning
Old 12-14-2014, 09:52 AM   #1
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Estate Planning

My net worth just ticked over $2M. I'm well below the federal estate tax, but my estate will have to pay state estate tax if it is valued at over $1M. Of course I could move to a state with a higher tax free amount, but what about the use of irrevocable trusts to reduce the value of the estate? Has anyone done this? I assume there would be tax implications on that transfer.
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Old 12-14-2014, 10:32 AM   #2
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As I understand it, funds in an irrevocable trust are no longer 'owned' by you, so escape estate taxes (subject to timing issues).

Revocable versus Irrevocable Trusts - For Dummies

As I understand, no tax consequences on the transfer. But trusts also might pay higher tax rates. But the question would be, what is the trust for? You could just give the money to charity (and get a tax deduction, up to some limits - 50% of income?). Or gift to individuals at a rate of $14,000 per year with no Estate /Gift tax consequences.

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Old 12-14-2014, 10:37 AM   #3
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Don't deal with all that stuff. It's a moving target anyway, as the rules change constantly. If you want to avoid state taxes, move to Texas. We chose Florida, but there are too many people here already. And we have fire ants too, so don't let REwahoo scare you away.
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Old 12-14-2014, 10:38 AM   #4
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we set up a disclaimer trust last year. that way the surviving spouse has the option of flipping the switch and creating two seperate sets of assets and double the state tax allowance if they chose to.
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Old 12-14-2014, 11:15 AM   #5
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we set up a disclaimer trust last year. that way the surviving spouse has the option of flipping the switch and creating two seperate sets of assets and double the state tax allowance if they chose to.
I'm single so don't get the extra tax free amounts or trust planing opportunities. I had thought of placing my house in trust to reduce the size of the estate, would that help to reduce estate taxes and still pass the house onto my beneficiary?
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Old 12-14-2014, 04:40 PM   #6
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You can't try to give an asset away and retain a life use of the asset such as with your house. That will bring it back into your estate. Also, forget irrevocable trusts. That is a gift and, yes, it removes it from your estate but it also puts the assets beyond your control. Do you really want that to save a few estate taxes?
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Old 12-14-2014, 08:17 PM   #7
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Don't you want a really nice yacht?
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Old 12-14-2014, 08:28 PM   #8
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Congrats nun!
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Old 12-15-2014, 09:48 AM   #9
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If moving is not an option - check with a "good" estate planning attorney in your state. There should be sound strategies for maintaining control of your assets (ie. inside an LLC) and at the same time transferring them to your beneficiaries. If you are going to hang onto your home until the end, and want to maintain control over it while avoiding estate taxes - believe an irrevocable trust for your home could be designated to pour over to an LLC, and you could be the executor. If you decide to sell it - its proceeds would go to the LLC. Complicated stuff, but I believe doable. Pretax retirement money doesn't fit within this scenario as I recall. You can go to this guy's website where he offers free material on the subject [http://www.rjmintz.com/] check out his book on Asset Protection for High Risk Individuals and Business Owners (free PDF version). Use an attorney familiar with your state laws.
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Old 12-15-2014, 10:11 AM   #10
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... Also, forget irrevocable trusts. That is a gift and, yes, it removes it from your estate but it also puts the assets beyond your control. Do you really want that to save a few estate taxes?
Bruce
Why not have control of where the money is going, rather than let Uncle Sam decide? I think an irrevocable trust could make good sense ofor the OP, though other options might work as well/better.

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Old 12-15-2014, 10:28 AM   #11
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Why not have control of where the money is going, rather than let Uncle Sam decide? I think an irrevocable trust could make good sense ofor the OP, though other options might work as well/better.

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I'm saying that placing the assets in an irrevocable trust puts them beyond your reach in case you ever might need those assets. An irrevocable trust is a gift - the assets are gone forever from being used by you or for your benefit. If you are sure you'll never need those assets, go ahead.
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Old 12-15-2014, 10:36 AM   #12
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I'm saying that placing the assets in an irrevocable trust puts them beyond your reach in case you ever might need those assets. An irrevocable trust is a gift - the assets are gone forever from being used by you or for your benefit. If you are sure you'll never need those assets, go ahead.
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Agreed. I guess I was thinking in terms of the $5M Federal Estate tax, giving up control of an amount exceeding $5M doesn't sound too risky. But re-reading the OP, I see we are talking about a $1M State tax threshold. Unless solid pensions/SS, or other income streams were above my spending expectations, I wouldn't want to give up control at that level.

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Old 12-15-2014, 12:50 PM   #13
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In all probabilities you either have to gift it or your estate pays a tax on it. Costs of setting up and maintaining trusts probably would exceed any value you would save in taxes. And, most States are increasing their estate tax limits to match the federal government......check out that before you do anything. My suggestion, either move or quit worrying about your estate paying the 5% tax.
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Old 12-15-2014, 04:48 PM   #14
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In all probabilities you either have to gift it or your estate pays a tax on it. Costs of setting up and maintaining trusts probably would exceed any value you would save in taxes. And, most States are increasing their estate tax limits to match the federal government......check out that before you do anything. My suggestion, either move or quit worrying about your estate paying the 5% tax.
I think you are right. I'm only 53 so things could well change...the MA limit has been the same since 2000.
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Old 12-20-2014, 07:23 PM   #15
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I am thinking of moving to FL or TX when I pull the plug for not only estate tax but also income tax.
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Old 12-20-2014, 07:55 PM   #16
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I am thinking of moving to FL or TX when I pull the plug for not only estate tax but also income tax.

Texas may be nice for income tax, but the property tax is beyond cruel. On a 500k house you may pay $15000/yr taxes. On my retirement budget I figure that I would only lay approx 1000/yr income tax here in CA, and the property tax would only be 5000/yr on a 500k house. I guess if ur renting it's fine, but otherwise it seems that they get u hard in Texas no matter what.


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Old 12-20-2014, 09:54 PM   #17
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congrats Nun,

Just spend more and the problem is solved.
Seriously, I would not worry about it until past the 5MM mark.
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Old 12-20-2014, 10:22 PM   #18
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Texas may be nice for income tax, but the property tax is beyond cruel. On a 500k house you may pay $15000/yr taxes. On my retirement budget I figure that I would only lay approx 1000/yr income tax here in CA, and the property tax would only be 5000/yr on a 500k house. I guess if ur renting it's fine, but otherwise it seems that they get u hard in Texas no matter what.


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The propery taxes depend first on if you live in the city or an unincorporated area. Outside a city taxes might run about 8.5k on a 500k house, plus you have to pay for trash pickup. But 500k gets you quite a house in smaller cities areas. Now if you want to live in Highland Park (inside Dallas) or West University (Houston) it is a different story.
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