Use Of Trusts Can Reduce Estate Tax Liability

The federal estate tax stands between your loved ones and their inheritances and it is something to take very seriously. There are those who are under the impression that the estate tax is only levied on the rich, but in reality many people who would not consider themselves to be wealthy are in fact exposed to the estate tax. And, it is important to understand that you may be exempt during one year and squarely in the cross hairs of the estate tax the next.

To explain, right now the estate tax exclusion is $5 million and the maximum rate is 35%. But this arrangement is only in place through the end of next year. Legislation could be passed in the meantime to alter these parameters, but as things stand as of this writing the estate tax exclusion is going down to $1 million and the top rate of the tax is being elevated to 55% in 2013. These days, a person with assets exceeding $1 million is probably not going to feel as though he or she is truly wealthy.

If your estate is in taxable territory you can work with an estate planning attorney to reduce or eliminate your estate tax exposure, and different types of trusts are often used to this end. For example, you could implement the “zeroed out” grantor retained annuity trust strategy to potentially transfer appreciable assets to a beneficiary in a tax-free manner.

With a qualified personal residence trust you can remove your home’s value from your estate. Though the gift tax would be applicable, the taxable value of the home would be considerably less than its fair market value once your retained interest is accounted for.

Generation-skipping trusts can enable two generations of your family to utilize resources placed in the trust while being tax just once.

These are just a handful of examples of how trusts can be utilized to reduce estate tax liability. To delve into the subject in greater detail, simply arrange for a consultation with an experienced and savvy estate planning attorney.

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Barry D. Horowitz, Estate Planning Attorney

Founding Partner and President at Nirenstein, Horowitz & Associates PC

Barry D. Horowitz is a founding partner and president of the law firm of Nirenstein, Horowitz & Associates, P.C. He received his diploma from the Loomis Chaffee School and his Bachelor of Arts from Bennington College, where he dual majored in philosophy and music. Mr. Horowitz was awarded his Juris Doctor degree with honors from the University of Connecticut School of Law. While attending law school, Mr. Horowitz received the American Jurisprudence Award in Legal Ethics and the Nathan Burkan Award...Read More!

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