Trust options in a new estate tax era

Estate tax laws have changed in the United States, and many Wayne County residents will need to revise their estate planning documents to keep up with the times. In anticipation of the changes, high-earners throughout the country established trusts in 2012 and took other estate planning measures to protect assets and limit tax liabilities.

A directed trust, for instance, involves giving an investment trustee or other advisor the power to make decisions about investments. The investment trustee is not the general trustee, so it is important in these cases that all of the involved parties carefully coordinate to make the best decisions with regard to allocating assets and harvesting gains and losses.

Another type of trust is a grantor trust, meaning the person who set up the trust will continue to pay taxes on anything the trust earns. That tax is applicable even if the trust earnings aren’t distributed, so estate planners will need to be fully aware of the pros and cons of taking this particular route.

Creating a charitable remainder trust is another option. With this kind of trust, estate owners can defer a capital gains tax by gifting appreciated assets, which can then be sold. The new tax laws apply a Medicare tax to passive income, but that tax does not apply to charitable remainder trusts.

In the past, life insurance trusts have helped estate planners protect their assets. These trusts can be somewhat complicated, though, and many people decide instead to directly own their life insurance policies.

In any case, the key to preserving and bolstering assets is choosing the estate planning instruments that are right for your particular situation. If Michigan residents would like to learn more about wills and trusts, our Wayne County trust planning site is there to help.

Source: onwallstreet.com, “The Post-Fiscal Cliff Estate Plan,” Martin Shenkman, April 1, 2013