Originally Posted by
Cohiba
Under the current rules, your heirs will be taxed (estate tax) at anything over $5.49M and that tax rate is 40%. While it might seem unlikely that you'll ever achieve that, with our current rates, retirements and length of service; one could easily bump up and over the $5.49 million especially if parents leave behind a sizeable estate.
The Will describes how your assets and belongings are to be handled and distributed after your death. A trust only details who is in charge of your trust upon your death (the Trustee). All assets are owned by the trust. The Trustee manages the assets. So in effect, one is able to bypass the estate tax. Because there are many types of trusts and people have different needs, you need to see a professional who is very good at the type of trust you need. I really think you get what you pay for in this deal.
Trump wants to introduce legislation removing the estate tax. His view is that the money was taxed at one point and doesn't need to be taxed again and that its onerous for a lot of people. Where I live, if a parent who owns a farm and dies with only a will, the value of the land, water and minerals can easily exceed $5.5M and the family can't pay the tax and loses the family farm. That's the big topic for today's farmers.
Our free service handles the will easily but for a trust, you need a professional to walk you thru it. If you know exactly what you want/need, you can also do it yourself but you need to do your homework.
Just a few observations -
1) The $5.49M trigger would only apply to the 2nd to die among married couples. Spouses are given an unlimited exemption between themselves - e.g., dad dies and leaves his $10M Delta 401(k) and $1.5M life insurance policy to mom (bad estate planning but it's a simple example). Despite the fact that dad had an $11.5M estate, his estate tax is zippo. Now, when mom dies, the first $5.49M (using the 2017 numbers) would be exempt under federal tax law (states have varying exemption amounts) and the remainder would be taxed at the current estate tax rate.
2) Your trust example is a bit convoluted. If you do an inter vivos trust, the assets are placed into the trust while you are alive. Just because those assets are in a trust does not necessarily mean they are exempt from the estate tax. Like Medicaid, there are look-back periods to be consided as well as the construction of the trust itself (revocable vs. irrevocable, self-settled, intentionally defective, etc...). Further, trusts have beneficiaries and an end-game (when the corpus of the trust gets distributed as well as who the beneficiaries are of that corpus).
Further, the distribution time-frame is controlled, in many states, by the Rule Against Perpetuities.
Finally, any trust created at the death of the testator is a testamentary trust and those assets would also be subject to the estate tax as well as probate.
I would HIGHLY advise against doing your own trust. Case law is riddled with examples of do-it-yourself trusts gone awry. Of course, you are dead at that point so...maybe you don't really care. 😁