The purpose of this blog post is to explore a question we frequently get asked – do I need a trust? Certainly, a carefully planned and drafted trust can be a valuable estate planning tool. However, unless our clients have a very high net worth, we often advise our clients to be wary of tax-saving trust “gimmicks,” as those tax savings are often illusory. In the 1980s and 1990s, many gullible individuals bought expensive trust packages that were intended to shield their income from taxation, “avoid probate” upon the individual’s passing and put more money in their beneficiaries’ pocket. However, these so called “family trusts” trusts simply did not work, and often, subjected the decedent’s estate to penalties. Also, for income tax purposes, a trust other than one that is treated as owned by its grantor is generally considered to be a separate taxable entity and subject to the same basic tax rules that apply to individuals.
However, when carefully crafted, there can be many advantages to forming trusts. Revocable trusts, in particular, offer a number of non tax advantages both during the grantor’s lifetime and thereafter, and can be a useful way of organizing and managing one’s property. Most importantly, the trust can serve as a probate avoidance device for assets such as real estate located in states other than the state of the grantor’s domicile. As a general rule, an estate administration proceeding must be commenced in each state in which a decedent owned land or real property. This can be avoided, however, by transferring the properties to a revocable trust. Revocable trusts may also be appealing to individuals who do not wish that the disposition of his or her property be a matter of public record.
Give us a call to see if a trust is right for you. We are happy to help.