Why Trusts are Still Relevant in a Post-Estate Tax World

The Trump Administration is about to join forces with a Republican Legislature, meaning there is a huge chance that the federal gift and estate taxes could be repealed. I have heard many of my colleague bemoan the fact that their bread-and—butter (complex estate tax-saving trusts) will become irrelevant, their careers are over, and how they wish they went into Medical School or they are moving to Canada in January or something else equally insane.

 

While trusts have been useful devices to preserve a spouse’s estate tax exemption for Credit Shelter Trust purposes, this has by no means ever been their only purpose. Indeed, plenty of people already have trusts for a multitude of other purposes that shall continue to maintain the relevance of trusts, even if we soon live in a no-estate tax environment:

 

  • Asset Protection: You cannot always protect yourself from your creditors, but you can usually protect your beneficiaries from their creditors. A trust with a disinterested trustee it still the preferred way of accomplishing this.
  • Income Tax Planning: in discretionary trusts, the trustee can choose which beneficiary receives the income, meaning beneficiaries with higher income can receive principle and avoid paying a disproportionate share in income taxes.
  • Divorce Protection: If your family member believes that prenuptial agreements are not romantic, you can still protect your gift to him by utilizing a trust.
  • Qualifying for Government Programs: Medicaid, SSI, Food Stamps, and many other government programs limit a beneficiary’s income and assets; by leaving a disabled beneficiary funds in a conforming trust they can still receive these benefits while not having to give money to the government to qualify for the programs.
  • Avoiding Probate and Ancillary Probate: Just because the federal government may no longer assess an estate tax is completely independent from actually transfer of the taxed property; absent a trust, real estate typically still needs to be transferred through the Surrogate’s Court, and real estate in other states will require an ancillary court proceeding…unless you hold the property in a trust.

 

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