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12-14-2014, 08:52 AM
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#1
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Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
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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.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”
Current AA: 75% Equity Funds / 15% Bonds / 5% Stable Value /2% Cash / 3% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
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12-14-2014, 09:32 AM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Location: Northern IL
Posts: 26,806
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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.
-ERD50
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12-14-2014, 09:37 AM
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#3
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2008
Location: No fixed abode
Posts: 8,764
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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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"Good judgment comes from experience. Experience comes from bad judgement." - Anonymous (not Will Rogers or Sam Clemens)
DW and I - FIREd at 50 (7/06), living off assets
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12-14-2014, 09:38 AM
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#4
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2005
Posts: 6,098
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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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12-14-2014, 10:15 AM
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#5
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Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
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Quote:
Originally Posted by mathjak107
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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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?
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”
Current AA: 75% Equity Funds / 15% Bonds / 5% Stable Value /2% Cash / 3% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
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12-14-2014, 03:40 PM
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#6
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Recycles dryer sheets
Join Date: Jun 2010
Location: Southwest Florida
Posts: 470
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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?
Bruce
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12-14-2014, 07:17 PM
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#7
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Thinks s/he gets paid by the post
Join Date: Nov 2012
Location: Madeira Beach Fl
Posts: 1,403
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Don't you want a really nice yacht?
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_______________________________________________
"A man is a success if he gets up in the morning and goes to bed at night and in between does what he wants to do" --Bob Dylan.
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12-14-2014, 07:28 PM
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#8
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 37,931
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Congrats nun!
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Retired since summer 1999.
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12-15-2014, 08:48 AM
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#9
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Full time employment: Posting here.
Join Date: Nov 2009
Posts: 592
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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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12-15-2014, 09:11 AM
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#10
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Location: Northern IL
Posts: 26,806
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Quote:
Originally Posted by MBMiner
... 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
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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.
-ERD50
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12-15-2014, 09:28 AM
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#11
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Recycles dryer sheets
Join Date: Jun 2010
Location: Southwest Florida
Posts: 470
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Quote:
Originally Posted by ERD50
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.
-ERD50
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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.
Bruce
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12-15-2014, 09:36 AM
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#12
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Location: Northern IL
Posts: 26,806
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Quote:
Originally Posted by MBMiner
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.
Bruce
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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.
-ERD50
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12-15-2014, 11:50 AM
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#13
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Full time employment: Posting here.
Join Date: Nov 2008
Posts: 728
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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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12-15-2014, 03:48 PM
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#14
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Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
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Quote:
Originally Posted by jerome len
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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I think you are right. I'm only 53 so things could well change...the MA limit has been the same since 2000.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”
Current AA: 75% Equity Funds / 15% Bonds / 5% Stable Value /2% Cash / 3% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
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12-20-2014, 06:23 PM
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#15
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Dryer sheet wannabe
Join Date: Jul 2008
Location: Hartford
Posts: 21
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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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X501
Ben Franklin fan
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12-20-2014, 06:55 PM
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#16
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Thinks s/he gets paid by the post
Join Date: Aug 2009
Posts: 1,577
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Quote:
Originally Posted by X501
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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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.
Sent from my iPad using Early Retirement Forum
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12-20-2014, 08:54 PM
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#17
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2014
Location: Spending the Kids Inheritance and living in Chicago
Posts: 16,973
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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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12-20-2014, 09:22 PM
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#18
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Thinks s/he gets paid by the post
Join Date: Mar 2010
Location: Kerrville,Tx
Posts: 3,361
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Quote:
Originally Posted by bmcgonig
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.
Sent from my iPad using Early Retirement Forum
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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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