Tax Savings

Tax and asset protection aspects of trusts depend on the financial situation of the creator and the type of trust used. In certain circumstances, a trust can achieve substantial tax savings yet not achieve asset protection from creditors of the trustmaker. Every-one gets a lifetime credit against Federal Estate Taxes that permits a transfer of up to $675,000 Estate Tax free. Individuals and married couples with a total estate value less than $675,000 in 2000 (the amount will gradually increase to the year 2006) do not need a trust to save on Federal Estate or Gift Tax. For those who are married, there is an unlimited marital deduction. All estate taxes can be avoided upon the death of the first spouse to die. However, the surviving spouse would have to remarry and give the entire estate to the new spouse in order to get another unlimited marital deduction. Many people would rather their own children benefit from their estate, rather than having a surviving spouse pass it on to a new spouse. A trust can accomplish this. The trustmaker can establish a tax by-pass Trust to hold property for children, while still allowing the trust funds to provide for the surviving spouse. This arrangement enables the trustmaker to place up to $675,000 in a Trust for the benefit of the surviving spouse and children which will not be subject to estate tax upon the death of the surviving spouse. Coupled with the surviving spouse’s estate and gift tax credit, the children could then inherit up to $1,350,000 free from Federal Estate and Gift Tax. At current Federal Estate Tax rates, this could amount to a significant savings of hundreds of thousands of dollars.


Inside Tax Savings