Estate taxes, sometimes called inheritance or death taxes, are levied on property that is passed to heirs after death. The Economic Growth and Tax Relief Reconciliation Act, passed in 2001, reduced federal estate taxes annually over the past ten years. This year, 2010, there is no tax at all on any estate. However, the tax is scheduled to return in 2011. In 2011 the tax rate will be 50 percent on any estate worth more than $ 1 million, a figure that is not hard to reach for many people.
Lawmakers are currently debating if the repeal of the tax should be let to stand. Without action by Congress only $ 1 million of an estate can pass tax free where in 2009 applicants could pass $ 3.5 million tax free.
Estate taxes are payable to the IRS nine months after the date of death. Regardless of the ultimate makeup of any new estate tax law, there are effective ways to reduce estate taxes by the use of trusts. The following is a list of the more common types of trusts:
- Living trusts
- Family trusts or revocable living trusts
- Irrevocable trust
- Special needs trust
- IRA trust
- Income rust
If you have received a recent inheritance, have a special need case involving a minor or incapacitated adult relative, or need assistance with an IRA or other income trust, a skilled trust attorney can assist you with the various trusts that are available. Trusts law is complex and your lawyer can fully advise you.
Family Trusts – Revocable Living Trust
Revocable living trusts or family trusts are trusts that can be terminated or modified at any time by the grantor for any reason. An irrevocable family trust can not be terminated or changed under any circumstances. Properly created trusts can maximize the amount of your estate that will flow to your relatives. One of the principal benefits for creating an irrevocable family trust is that your assets are then protected from nursing home expenses or uncoovered medical expenses.
Special Needs Trusts
A special need trust can be created to provide for your minor children or incapacitated adult relatives for their care after you are gone and until they are old enough or healthy enough to care for themselves. A parent can name a trustee to be in control of the finances and to decide whether to sell or keep property, and manage assets such as real estate.
Trusts work particularly well with Roth IRAs, since there are no required distributions until after the death of the owner. A skilled estate planning attorney knows how to create see-through or conduit trusts that are particularly beneficial for passing assets to grandchildren by naming trusts as beneficaries of the Roth IRA. If you are looking to set up or learn more about income trusts other than an IRA or would like more information on the IRA trust option, contact one of our qualified attorneys at Lance P. Armstrong, PLLC today.