The Truth About Revocable Trusts and Taxes

By : | Category : Estate Taxes, Irrevocable Trusts, living trust, taxes | Comments Off on The Truth About Revocable Trusts and Taxes

21st Nov 2012

Many people prefer to create a living trust since there are far less regulations with it and they do not go have through probate. Another reason, or rather misconception is that the taxes are less on a trust than the normal inheritance tax.

That could not be further from the truth. A revocable trust is tax neutral document, which does not increase or decrease the tax liability involved. Whether the deceased wrote the will as a will or a revocable trust, the taxation to the heirs is the same with either document.  This is why it is important to really do your homework and speak with a professional before making decisions with your estate.

The main reason is because reducing or eliminating the estate tax or “inheritance tax” is a colloquialism. This is something determined by the recipient of the inheritance, like a  spouse or a charity, as opposed to what instrument is used to create the will or trust.

However there are several other types of trusts which are created to avoid or reduce taxes. Some examples of this include a disclaimer, or an A/B and charitable trust.  These are all specifically designed for such a purpose. Still, each of these trusts utilizes beneficiaries that are considered allowable deductions for estate tax purposes. Take into consideration a person who has a  $100M estate passes away, they can devise their estate to go entirely to charity and their estate will not have any estate tax liability.

There are a lot of myths and misconceptions that people have when it comes to estate plans or probate, and it would be a shame to make an uninformed decision with your assets that was based on a misconception.

If you want more specific information on estate taxes in California it is always best to consult with an attorney who specializes in this area of law.  Remember, laws change so what you knew you could do a year ago may not be the case now or in the future.

Comments are closed.