The estate tax is a concern for many people who have been able to accumulate significant stores of wealth. At the present time the amount of the federal estate tax exclusion is $5.34 million. If you intend to transfer assets that exceed this amount, your estate is facing estate tax exposure.
It should be noted that there are some states that impose estate taxes at the state level. Our firm practices in Oklahoma and Kansas. Although these states previously imposed a separate state estate tax, both states have since repealed their estate tax provisions at the state level.
As a result, if you are a resident of Oklahoma or Kansas, the only estate tax that you have to worry about is the federal estate tax, assuming you do not own valuable property in another state that has an estate tax on the state level.
Trusts for Estate Tax Efficiency
Those who are facing federal estate tax exposure must implement estate tax efficiency strategies. You may wonder if a trust will protect assets from the estate tax. The answer is yes and no.
There are revocable and irrevocable trusts. Assets that have been conveyed into a revocable trust would be part of your taxable estate because you are retaining incidents of ownership. You can act as the trustee and the beneficiary while you are still living, so you can direct the actions of the trust and take monetary distributions as you see fit.
Because the trust is revocable, you can rescind the trust at any time. If you were to revoke the trust it would no longer exist, and the assets would once again become your personal property.
Since you have ongoing control of the assets that you place into a revocable living trust, they would count when the Internal Revenue Service was calculating the taxable value of your estate.
Revocable living trusts are useful for those who are not exposed to the estate tax who want to facilitate asset transfers outside of the process of probate.
Things are different with an irrevocable trust. You surrender incidents of ownership when you create and fund this type of trust. As a result, generally speaking, assets that have been conveyed into an irrevocable trust would not be looked upon as part of your taxable estate.
Irrevocable trusts that are utilized to provide tax efficiency would include grantor retained annuity trusts, generation-skipping trusts, qualified personal residence trusts, asset protection trusts, charitable lead trusts, and charitable remainder trusts.
We would be glad to assist you if you would like to discuss wealth preservation with a licensed estate planning attorney. Our firm offers free consultations, and you can quickly and easily request an appointment through the contact page on this website.
Parman & Easterday