Accumulating wealth that you can pass along to your loved ones after you are gone is rewarding, but earning the money is only half of the equation. Given the potential impact of estate taxes, you must also take steps to preserve your wealth. This can be done through the creation of a family wealth trust of some kind.
There is no specific type of trust that is formally called a family wealth trust, but this is a general umbrella that multiple different types of trusts would fall under. Before we look at some of these family wealth trusts, we should provide some information about the estate taxes that could be a factor for you.
First, there is the federal estate tax that everyone in all 50 states must be concerned about. You can transfer unlimited assets to your spouse tax-free, but asset transfers to others are potentially taxable. However, there is a relatively large credit or exclusion that allows you to transfer a certain amount of property free of taxation.
For the rest of the 2015 calendar year, the federal estate tax exclusion is $5.43 million. Each year this figure is adjusted slightly to account for inflation, so next year the number may be somewhat larger. The first $5.43 million that you transfer could be transferred tax-free, but the rest would potentially be subject to the estate tax. This tax carries a 40 percent maximum rate.
Our firm is located in the state of Connecticut. In our state, there is a state-level estate tax to contend with as well. The Connecticut estate tax exclusion is just $2 million. This is considerably lower than the federal exclusion, so you could face state-level exposure even if your estate is exempt from the federal estate tax.
We should point out the fact that there is an unlimited marital deduction on the state level as well. You can transfer unlimited assets to your spouse without incurring any Connecticut state estate tax liability.
Now that we have explained the lay of the land, we can look at family wealth trusts that are often utilized by people who are exposed to death taxes. A trust that would preserve assets would be an irrevocable trust, because you surrender incidents of ownership when you create this type of trust.
Generation-skipping trusts, grantor retained annuity trusts, charitable lead trusts, charitable remainder trusts, and qualified personal residence trusts are some of the trusts that are used for wealth preservation purposes. The optimal plan will depend upon the circumstances.
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You can potentially use a family wealth trust to preserve resources that you are passing along to your family members. If you would like to discuss your unique personal situation with a licensed professional, send us a message through our contact page to request a free consultation: Hartford CT Estate Planning Attorneys.