LIVING TRUSTS – NOW IS THE TIME TO ACT!

Many of the benefits of LIIVNG TRUSTS (revocable living trusts or RLTs) may be lost at the end of this year if Congress has its way. RLTs, classified as Grantor Trusts by the IRS, (meaning that they are in effect the alter ego of the person who creates it) are a disregarded entity for federal income tax purposes. All assets transferred to, and owned by the RLT, typically highly appreciated assets or those expected to be so in the future, such as one’s home or stocks, continue to be owned by and under the control of the asset owner. Some of the key benefits of RLT currently available include:

  • Trust-owned assets receive a step-up in tax basis at the time of the grantors death. This means the assets are valued at the fair market value at the time of death and the appreciation of value is not subject to capital gains taxes;

  • These assets are not included in the grantor’s estate for federal estate tax purposes. While this benefit was enjoyed previously by all but the .1%-ers because of the exemption amount of $11.7 per person or $23.4 million per married couple, Congress is attempting to lower these exemption amounts to $3 million and $6 million respectively.

Here’s the good news…as currently proposed, RLT’s created before the end of this year would not be subject to these onerous changes in the tax code.

Because of what has been up to now historically high exemption, many individuals felt, rightfully so, that wills for the most part, would serve to avoid the extreme 40% tax rate on estate taxable income. Now, better to be safe than sorry, and reach out to your estate planning attorney for a review of your current situation possibly before it’s too late.

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