“Does a Living Trust Allow You to Avoid Estate Tax?” by Attorney Alexander M. Pagnotta
One common question that arises when people are creating a living trust is whether or not this type of trust can provide protection from estate tax. It’s important to realize that while a living trust does allow you to transfer assets outside of the probate process, this does not mean that putting wealth into a living trust will make it possible for you to avoid having to pay taxes on your estate.
A qualified estate planning attorney can help you to determine if you will owe estate tax and can provide guidance on the steps you can take to try to reduce the taxes that your estate may need to pay after you are gone. We can also provide personalized advice on how to make the right type of trust that will accomplish your asset protection goals.
Avoiding estate tax is important if you do not want your estate to be taxed upon your death. Recently, the federal rules changed in connection with estate tax. Recently, the federal rules changed in connection with estate tax. In particular, the exempt amount that you can pass tax free increased substantially under new tax reform rules. While it was previously possible for an individual to pass up to $5.6 million in property tax free, the amount that can be passed without triggering federal estate tax has been increased to $11 million.
Married couples are able to pass an unlimited amount of assets to their spouse tax free, and unused exemptions can transfer from one spouse to the other. This means that if you are married, you can transfer unlimited assets to your spouse and your spouse can now pass on up to $22 million tax free with your combined exemptions. This means many people won’t have to worry about federal estate tax. However, it is possible you will owe estate tax in Maryland at a much lower threshold.
You should talk with an experienced attorney about whether estate tax is something that you will need to plan for when you are creating an estate plan. If your estate will end up needing to pay taxes to the state government or the federal government, a living trust will not allow you to avoid this obligation even though the assets in a living trust pass outside of the probate process. The assets that the trust owns and that pass through trust administration are still considered to be a part of your taxable estate.
There are other techniques that can be used to try to reduce the amount of estate tax that has to be paid and there are tax-planning tools you can use that could help you minimize estate tax. Avoiding or reducing estate tax requires advanced planning and you need to understand what tools you can use and implement your plans properly in accordance with the law.
We can work with you to determine if you need to use asset protection tools such as trusts to take steps to try to reduce or avoid estate tax or to otherwise avoid financial loss and keep your wealth safe. We can also help you to ensure you fully understand the different tools that can allow you to leave the legacy you desire and can help you to implement a plan that makes the best use of those tools to keep your assets and family secure.
To find out more about how our firm can help you, join us for a free seminar. You can also give us a call at 410-573-4818 or contact us online today to talk with a member of our legal team about the personalized help that we can provide.
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