How will Trump’s Presidency Affect Your Trust?
With the impending inauguration of Donald Trump as our nation’s president, we would all be wise to prepare for a more conservative economic landscape that will likely include the elimination of some gift and estate taxes, lower overall rates, and new deductions. Particularly, if Trump moves forward to repeal the estate tax, many questions surface around the tax consequences within family trusts.
Whether you currently have or are thinking of establishing a trust, here are some important considerations going into the next year with our new president.
Federal Estate Tax
Trusts are an important estate planning tool for avoiding probate, protecting assets, and Medicaid planning. For people with larger estates, trusts are also an effective way to save money on taxes. For example, commonly used A – B and QTIP trusts allow you to divide your estate into several sub-trusts to avoid the federal estate tax of forty percent (40%). However, Trump’s proposed repeal of the current federal estate tax could eliminate this estate tax entirely. Thus, notwithstanding the other benefits of a trust, the new proposal would limit the need for a trust. This could mean savings upwards of $268 billion over the next ten years, collectively, for those with larger estates.
It’s important to keep in mind that Trump has no interest in changing the unlimited marital exemption that is currently in place. For example, let’s assume Henry and Wilma have an estate worth $10 million. Henry dies leaving Wilma the entire estate. Even before Trump’s plans are proposed, the entire $10 million would pass to Wilma, estate tax free. In other words, Wilma would receive the entire amount and not have to pay a 40% tax. Wilma avoids paying any tax because our current laws allow for your entire estate to pass tax free to your spouse.
Advantages of a Trust
Less than five percent of Americans would be affected by Trump’s estate tax proposal. However, there are numerous non-tax related benefits for having a trust as part of your estate plan. The biggest advantage is that trusts allow your loved ones to avoid probate. Under Ohio law, an estate caught up in the probate process will likely be trapped there for a minimum of six months, and ultimately could take years to administer. A trust eliminates the need to go through the probate court and keeps your estate private.
Other Types of Trusts and their Advantages
There are many different types of trusts that can be beneficial under specific circumstances. For example, a charitable trust is a unique tool used to establish your legacy with a charity while saving on your income taxes. Charitable trusts can effectively remove you from a higher income tax bracket and provides income over your lifetime. Revocable and irrevocable trusts are another form that might help provide protection against creditors, Medicaid, and law suits. And finally, special needs trusts might help protect your special needs child or family member.
In sum, regardless of the changes implemented by our new administration, establishing a trust remains an effective way to save time, money, and to avoid prolonged probate headaches for your loved ones. Furthermore, not only does a trust help avoid the probate process, it also protects your assets against opportunistic creditors and other litigative perils. Most importantly, a trust ensures the right people inherit your legacy, and that nothing can be claimed by the State.
Join us for this FREE workshop to learn more about the benefits of trusts and other asset protection tools.
Update: This workshop is no longer available; therefore we have removed the link to the event workshop. 06/2019