SR Guest Author Rachel Tucker: Now that the Estate Tax Laws have changed, do I still need a Trust?
Rachel Tucker is a partner with the law firm of Joelson Rosenberg, PLC in Farmington Hills, Michigan. Her practice of over 16 years focuses on estate planning, probate, real estate and small business/corporate law.
The enactment of the 2012 American Taxpayer Relief Act brought a larger than ever dollar amount that a person can leave to others upon their death which is inheritance or estate tax free. For 2013 and on, a decedent can leave up to $5.25 million estate tax free upon their death and this figure is set to adjust based on COLA going forward. As a result, many have thought that they can no longer benefit from a trust, but a trust offers more than estate tax planning.
When most people say they have a trust, they are referring to a “Revocable Living Trust.” The word “Revocable” means that it can be amended or revoked. There are trusts that are “Irrevocable” or not able to be amended or revoked, but these are generally done for estate tax avoidance purposes and with the new exemption allowing a person to leave $5.25 million estate tax free, the need for irrevocable trusts has been reduced. The word “Living” means the person created the trust while they were alive and it became effective while they were alive. The opposite of a “Living Trust” is a “Testamentary Trust,” which is a trust created inside of a Will and it becomes effective only upon a person’s death with the admittance of the will to the probate court and must remain supervised by the probate court. Which leads us to the reasons to do a “Revocable Living Trust” other than for estate tax planning:
1. A Living Trust can help you avoid probate. Upon a person’s death, their trust, or more specifically, the successor trustee, passes out or is able to administer the assets that are in the name of the trust or retitled to the name of the trust. If an asset was never moved into the name of the trust or the trust was not named as the beneficiary, then it does not get administered through the trust. If the asset was not moved into the trust, it can pass to a named beneficiary, living joint holder, or if none of these, it must be administered through the probate court. The act of moving an asset into the name of the trust, or naming a trust as the asset’s beneficiary is called “funding” the trust. But do not despair, moving an asset into the name of your trust does not mean you do not have control of your asset. If you create a living trust, you and the trust are one and the same for tax purposes- you still file your taxes like you normally do. Any accounts or other assets you move into the name of your living trust still use your social security number and you, as trustee, still control the assets. Thus, creating a trust and actually funding it, allows the successor trustee to access these assets and administer them upon your death without the involvement of the probate court.
2. A Living Trust can help allow access to your accounts upon your incapacity. Just like as discussed above, if you move an asset into the name of your trust and become incapacitated, your successor trustee can access these assets and use them for your care or that of your dependents.
3. A Living Trust can allow you to leave assets to beneficiaries upon reaching certain ages or conditions. As a general rule, if you name a minor as a beneficiary of an asset and the amount exceeds $5,000, the monies must be deposited into a conservatorship for the benefit of the minor with the probate court and monitored until the child reaches age 18, at which time they receive the money. People often do not want that. A trust can help. Through a trust, you can name your children or grandchildren to receive monies, instruct the trustee to use the funds for the beneficiaries healthcare, education (especially for college), maintenance or support and then instruct that the beneficiary only receive the remaining funds upon reaching certain ages; for example: 1/3 at age 25, 1/3 at age 28 and the rest at age 30. You can also put other conditions upon receiving the funds such as completing an undergraduate degree.
Keep in mind that there are a lot of reasons to still do Living Trusts even though the tax laws have changed. Contacting your estate planning attorney and tax advisor should continue to be your first steps when changes like this occur.
Rachel Tucker is a partner with the law firm of Joelson Rosenberg, PLC in Farmington Hills, Michigan. Her practice of over 16 years focuses on estate planning, probate, real estate and small business/corporate law.
Contact Rachel Tucker at:
Rachel H. Tucker, Esq.
Joelson Rosenberg, PLC
30665 Northwestern Hwy., Ste. 200
Farmington Hills, MI 48334
phone: 248-626-2226
fax: 248-626-2177