Tax Benefits


Most of the time, savings from estate planning and living trusts comes from avoidance of attorney’s fees and probate expenses. However, there are significant estate tax considerations as well. While living trusts do not save estate taxes, in and of themselves, they do provide a planning vehicle to fully utilize each individual’s estate tax exemption or estate tax credit. The estate tax exemption as of January 1, 2014 shelters over $5 million from estate taxes per individual. That’s over $10 million per married couple when planning is done properly. For now, the estate tax exemption is so high that it simply does not affect most of our clients. Additionally, new laws allow for portability of the exemption amount from one spouse to the other.
So how does a trust help? Other types of estate planning like a will, joint tenancy, or no planning at all may result in a married couple receiving only a single exemption instead of the two they should receive. Portability only applies if the surviving spouse files an estate tax return and proactively elects the portability. On the other hand, if a Living Trust with “A-B Provisions” is in place and one spouse dies, the Living Trust splits into two separate trusts (commonly referred to as an A-B Trust). In an A-B Trust, each of the two separate trusts essentially represents each of the two spouses and provides a planned way to capture both exemptions. With an A-B Trust, there is no chance of the surviving spouse missing the window to elect portability. The A-B Trust can provide a sure way to pass the most possible to your beneficiaries estate tax free.

The government may repeal or eliminate estate and capital gain taxes some day. But for right now, it’s critical to understand how these taxes will effect your estate and plan to minimize them where possible

Proper Planning will Avoid Capital Gains Taxes for your Heirs


Also important, but less discussed, is the favorable stepped-up basis and probate avoidance features of property when held in a living trust. Especially if you own any appreciated real estate investments like rental property. Many people use joint tenancy as a vehicle to avoid probate. Unfortunately, it has proved to be a taxation disaster for many because they focused on avoiding probate, but not on avoiding capital gains taxes. In joint tenancy, when one spouse passes away, the surviving spouse only receives a partial stepped-up basis on investments. If the properties are sold, the there can be significant amounts of capital gains taxes due which were completely avoidable with proper planning. If you own appreciated assets, especially real estate, it is absolutely critical for you to do proper estate planning.