best way to protect assets from estate taxes

[frank]

I was posting on another forum about estate taxes and whether they were fair or not. I was just curious about how some people protect their estate. do you use a trust or a will. what other methods would be useful?

 

[REWahoo]

"best way to protect assets from estate taxes"?

Simple - I plan to do a 'reverse Don Pardo' and leave no parting gifts.

 

[MasterBlaster]

Frank:

A trust or will does nothing to prevent estate taxes. They just insure that your designated heirs get what's left over.

For estates smaller than the estate tax exemption I don't see the advantage of a trust.

 

[ds13961]

I would read a few recent books about estate planning and taxes before making a decision and contacting a lawyer who specializes in trusts. Although I would definately urge you to consider a trust such as an AB trust. Taxes are not avoided by a trust but probate fees to lawyers and courts are unavoidable in a will and which can cost $1000s more than establishing a trust for $500-$2000.00. There are problems with wills in which your intent in your will can be overridden by joint rights of survivorship issues. There is a myriad of other problems with just leaving a will so look into it. Estate planning is complex but actually interesting (especially if you read real life examples from celebrity wills etc.) Good luck.

 

[MasterBlaster]

The downside of a trust is that the executor does all the liquidation in private. Should an executor be ethically challenged, then a less than fair distribution of assets may take place.

At least with probate you get a court-supervised distribution of assets.

And for modest estates the difference in fees is modest.

For most modest estates, in my opinion, the normal probate procedure can work quite well.

 

[haha]

Many people on the board love estate taxes (or perhaps just love them for others? Others with either estates or kids?) So I wouldn't expect a lot of estate tax expertise around here.

Ha

 

[SunsetSail]

Some estate tax can be avoided by a simple A-B Trust. The arrangement preserves the unified lifetime credit of the pre-deceased spouse while providing the surviving spouse limited access to the funds in the irrevocable trust that is created upon the death of the first spouse. The access to funds is limited to health, education, maintenance and support. You will need to talk to an attorney that specializes in trusts and estates because there are many potential pitfalls and state considerations as well.

There are many more ways to reduce estate taxes using trusts that range from the relatively simple to the downright exotic with questionable acceptance by the IRS.

 

[Nords]

I was posting on another forum about estate taxes and whether they were fair or not. I was just curious about how some people protect their estate. do you use a trust or a will. what other methods would be useful?

I'm with REWahoo. I'll be dead, so I won't care, and we'll probably have spent it all anyway.

We looked into revocable living trusts, mainly as a means of a long-term POA for medical crises, but the expense and maintenance isn't much better than probate. Oh, wait, I personally won't be going through probate, so maybe there's no need to go through a RLT either.

Spouse and I finally made wills with A/B trusts just because it was part of the package. Otherwise I doubt we'll ever be subject to the estate tax and probate won't be too taxing on our heir.

 

[Brat]

In my experience the advantage of a trust while you are living is that the trustees you designate can easily pay your bills and manage your finances when the time comes that you cannot. They do not need to ask a court's permission to do that.

Just like a will you specify how you want any residue disbursed after you pass away. In some states all persons named in the trust receive a copy of the trust at your passing. If you state that the named individuals receive a % then the trustee must provide the heirs a financial statement. [There is an advantage to setting a specific amount for troublesome heirs for that reason.]

For people with substantial assets estate tax maneuvers can be included in the trust's design.

Having our parent's assets in trusts really helped us manage their affairs.

 

[MasterBlaster]

In my experience the advantage of a trust while you are living is that the trustees you designate can easily pay your bills and manage your finances when the time comes that you cannot. They do not need to ask a court's permission to do that.

Just like a will you specify how you want any residue disbursed after you pass away. In some states all persons named in the trust receive a copy of the trust at your passing. If you state that the named individuals receive a % then the trustee must provide the heirs a financial statement. [There is an advantage to setting a specific amount for troublesome heirs for that reason.]

For people with substantial assets estate tax maneuvers can be included in the trust's design.

Having our parent's assets in trusts really helped us manage their affairs.

You refer to two separate things. A trustee for your estate trust is not someone with power of attoney (when you are still livingt) and vice versa. They can be the same person but do not have to be. Either one of them is at your option.

 

[Brat]

I was discussing revocable living trusts:

A trustee, if the trust documents so state, can manage all the assets titled in the name of the trust. The trustee is acting as a trustee under the terms of a trust, a power of attorney is not necessary. A power of attorney is needed for assets outside the trust. Agencies such as Social Security may have their own power of attorney paperwork.

At the death of the last grantor trustee the trust becomes irrevocable and the trustees must apply for a tax ID. The trustee/s continue to be able to manage the trust assets under its terms. A power of attorney expires at the death of the grantor and anything outside the trust must be managed under the terms of a will.

We have always titled our RE in our trust. Sometimes it is necessary to pull it out of the trust at sale, it really depends on local practice. We didn't, but it did require more pieces of paper to do the job.

IRAs can't be put in a trust but you can authorise someone to act on your behalf to manage the account. The IRA custodian will ask you to name who you want to receive it when you die.

 

[sheehs1]

I was posting on another forum about estate taxes and whether they were fair or not. I was just curious about how some people protect their estate. do you use a trust or a will. what other methods would be useful?

Frank...estate taxes will only be a problem if your assets are above the exemption. The exemption ( Unified Tax Credit.) is currently set at 5 million. Back in 2001 it was $600,000...so you see there has been a huge jump from then to now. Congress can also change that amount in future years.
So..I'd recommend staying on top of what the exemption amount is.
Second...if your assets exceed the exemption....start gifting your money away to your children or whoever else you'd like. You are able to "gift" $13,000 a year to anyone for any reason. You and a wife together may gift $26,000 a year. So "gifting" is way to get some of it into the hands of your heirs and reduces the value of your estate that may be hit with estate taxes.
I don't know your situation...but for anyone with assets over 5 million (or less since we don't know what the exemption will be), I'd definitely recommend becoming knowledgable about trusts.
For gross estates convincingly over the 5 million right now...you can't avoid all estate taxes...but you can minimize thru gifting and delay them thru trusts.
Another example: If you have life insurance..consider putting it in an irrevocable life insurance trust. Why? When it is in this type of trust, the insurance proceeds are not includable in the gross estate. But one must make sure they want it in an IRREVOCABLE vehicle...because....well...it is irrevocable.

 

[sheehs1]

...and to make sure I'm clear on the gifting thing...you are not limited to one gift of $13,000 or with your wife of $26,000. You can give that to any number of people you want...each year...every year. For ex: you and your wife could gift $26,000 to 5 people a year which totals $130,000 a year.

 

[youbet]

Congress can also change that amount in future years.

And Congress will continue to change the rules periodically to maximize the profitability of the estate planning industry and the lawyers/CPA's and others who work in it.

 

[frank]

lots of good info here. What I was more concerned with than taxes was who would get what and how to insure it happens the way I want it to. sounds like some of the simpler trusts might be worth looking into.

 

[Brat]

Remember you can always amend the trust, even changing the trustees, if need be. You determine the 'need'.

 

[sheehs1]

Frank....The title of your thread indicated it was about estate taxes. Be that as it may...a will can achieve the same thing as a trust. You don't need a trust to route your assets where you want them. Lots of good reasons for trusts.
1. Privacy - wills are filed with the courts and become open to the public. Any Jo blow can go to the courthouse and find out your assets as well as who got what. Many would like for this information to remain private and use a trust to do so. Trust are not recorded at the court house. Of course by the time you have to give a copy to every bank in the area...some of the "word" is out. Still...a trust can protect privacy to some degree.
2. Immediacy - Assets placed in trust do not have to clear probate before you can do something with them. Useful in the event there is property to sell...etc.
3. Marital trust are particularly useful for many reasons.
- one spouse may not want the other spouse to permanently end up with his
or her assets...but would like that spouse to be able to enjoy any income
produced from said trust during their life. At the death of the 2nd
spouse...said assets will be routed based on the wishes of the first spouse.
(I'm sure their was an easier way of say that - LOL!)
The cons...incude but are not limited to....
- having to file tax returns each year for a trust.(since it is it's own legal entity) ..so it potentially increases accounting cost...depending.
- a Trustee must follow prudent man statutes....so assets may or may not grow to the extent otherwise possible....outside of a trust.
- selecting the trustee and alternate trustees is a pain ...for many. Who do you trust that long to administer it properly. ?
- Trustees can collect trustee fees...which can reduce the income to a fairly significant degree. Last I knew it was something like .06% principle asset base and 5% of income....EACH YEAR. Depending on assets and income generating ability this can become significant. Lower then executor fees...but with a trust...can go on for years depending on ow it is structured...

Just a few things to think about. Good luck...!

 

[Brat]

The cons...incude but are not limited to....
- having to file tax returns each year for a trust.(since it is it's own legal entity) ..so it potentially increases accounting cost...depending.
- a Trustee must follow prudent man statutes....so assets may or may not grow to the extent otherwise possible....outside of a trust.
- selecting the trustee and alternate trustees is a pain ...for many. Who do you trust that long to administer it properly. ?
- Trustees can collect trustee fees...which can reduce the income to a fairly significant degree. Last I knew it was something like .06% principle asset base and 5% of income....EACH YEAR. Depending on assets and income generating ability this can become significant. Lower then executor fees...but with a trust...can go on for years depending on ow it is structured...

Just a few things to think about. Good luck...!

You don't need a tax ID for a revocable living trust, you use the grantor's SSN.

If you ask a financial institution, attorney or CPA to be your residual trustee (you manage the trust yourself as the grantor trustee, just as you would an IRA, until you pass off the responsibility) then they are entitled to a fee. In our case we managed our parents trusts for no fee when they could no longer do so. Each month I sat down with my mother when she was in a nursing home and showed her the bills and her investments. Often I asked her to sign the checks. She ran a business and was a smart cookie, and was entitled to respect.

And yes, it is a long lived document. A person named in one of the trusts became disabled and was on SSI so the trust had to be amended to provide for a special needs trust for that person. Had the grantor trustee anticipated that a provision to create such a trust could have been included.

Meet with an attorney in your area who has experience in estate planning, they are the experts. If you change states of residency have an attorney in that state review the document (and your other estate planning documents) to make sure that it squares with that state's laws.

 

[sheehs1]

You don't need a tax ID for a revocable living trust, you use the grantor's SSN.

True...until the grantor passes away. That is what I was referencing....

 

[sheehs1]

If you ask a financial institution, attorney or CPA to be your residual trustee (you manage the trust yourself as the grantor trustee, just as you would an IRA, until you pass off the responsibility) then they are entitled to a fee. In our case we managed our parents trusts for no fee when they could no longer do so.

Meet with an attorney in your area who has experience in estate planning, they are the experts. If you change states of residency have an attorney in that state review the document (and your other estate planning documents) to make sure that it squares with that state's laws.

All trustees are entitled to take the fee whether professional or a family members. Family members may elect not take the fee but can. The trustee in our family took the fee - so did the family named executor.

 

[Brat]

Family dynamics differ. Before naming anyone as a trustee I would discuss that with them.

 

[Khan]

Don't want money to go to relatives.
Am giving money away while I am alive.
BTW: don't ask

 

[Brat]

If you can figure out how to make your resources exactly match your lifetime please share your methodology.

I do agree that giving during life is the way to go.

 

[jdw_fire]

If you can figure out how to make your resources exactly match your lifetime please share your methodology.

SPIAs

 

[bob boag]

I watched a 2008 show called "Stay Rich Forever and Ever" on Netflix by a guy named Ed Slott. I know nothing about him but he claims he's a tax accountant and he's just trying to sell his services and books. I have no idea if ER.org & Boggleheads hate him or what. Anyway this whole show is about avoiding estate taxes. He recommends:

1) Life insurance - payout is tax exempt. Put a portion of your wealth that you don't need/plan to bequeath into life insurance.

2) Estate tax exemption - Don't waste it on your spouse; use a different beneficiary

3) Stretch IRA

4) Spend your money now with your loved ones.

I don't know if the intervening 3 years have affected any of these stratagies in terms of tax laws.