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Help
Protect Assets for Heirs with a Trust
A
temporary phase-out of the federal estate tax was set in motion by Congress in
2001 — but don’t bet the farm that estate taxes won’t be around in the
future.1 Although nearly 70 percent of
Americans say they support repealing the estate tax, history shows that it has
risen from the dead before.2 One way to help
reduce potential taxes is by setting up a trust.
A+B = Double the Exemption
Under federal law, the first $1 million of an estate may be exempt from federal
estate taxes in 2003 ($1.5 million in 2004). A living trust with an A-B
provision could allow a married couple to take advantage of this exemption
twice. When the first spouse dies, assets up to the applicable exemption amount
go to Trust B, the deceased spouse’s trust, and the balance is transferred to
Trust A, the survivor’s trust. If properly structured, each trust becomes a
taxable entity that is exempt from probate and entitled to the applicable
exemption amount. Without a bypass trust, the couple could use the exemption
only once — after the surviving spouse dies.
Bypass Probate, Too
Even if federal estate taxes are permanently repealed, the ability of a trust to
avoid probate is still a major advantage. Probate is a public and oftentimes
lengthy and costly process in which the courts distribute your assets after your
death, even if you have a will. Because the details of a trust are not made
public like a will, this added privacy can help shield your heirs from unwanted
solicitations regarding anything from questionable investment schemes to
requests from legitimate charities.
The federal estate tax is only one aspect of the need for estate planning. A
properly structured trust might help your heirs reduce fees and taxes on
property you had intended for them to receive. Because the use of trusts
involves complex tax rules and regulations, be sure to consult your legal, tax,
and estate planning advisors before implementing a trust.
1) Under budget rules of
the 2001 tax act, the federal estate tax is repealed in 2010. However, unless
Congress takes action, the federal estate tax will be reinstated in 2011.
2) The Wall Street Journal, June 23, 2003
© 2003
Emerald Publications
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