Do I Need a Trust? How a Trust May Be Beneficial.

What is a Trust?

A trust is a type of entity that holds and owns assets separately from the person contributing assets to the trust.  Typically trusts are established to benefit the trustor (the person contributing the assets to the trust) during the lifetime of the trustor, and then, upon the trustor’s death, the trust may benefit the trustor’s spouse, children, and/or other named beneficiaries.

Under this scenario, the trust cannot be used to avoid liabilities of the trustor.

What are the Federal and State of Arizona Estate and Gift Exemptions?

Beginning in 2016, the federal estate and gift tax exemption is $5.45 million for an individual, and $10.9 million for a couple.  This means that upon death, a person or a couple can give up to this amount to others upon death without being subject to federal estate tax.  Since 2005, the State of Arizona no longer imposes an estate tax.

Past Considerations for Creating a Trust – the Previous Lower Thresholds

In past years, the federal estate and gift tax exclusion was much lower.  For instance, the individual exclusion amount was only $1 million in 2002.  It rose to $3.5 million 2009 before being repealed in 2010.  Since certain types of life insurance policies and real estate are included in the “gross assets” of a person’s estate, many people formerly were subject to federal estate tax because the value of their estate (including insurance policies) exceeded the exemption.  As a result, using a trust was often a tax-advantaged strategy for shielding assets from taxation.

Current Considerations for Creating a Trust

Today, with the much higher exemption limits, a trust is no longer needed by most people in order to avoid having to pay an estate tax.  As a result, the additional cost to create a trust, as well as the costs and time to transfer assets into a trust and to maintain the trust, can often be avoided.

Nonetheless, there are often valid reasons for creating a trust, including the following:

• Situations in which an individual or couple may be near or over the current exemption threshold,

• Situations in which a parent or parents may wish to have assets placed into a trust that would limit the amount of trust assets that could be used by children prior to certain conditions being met (like them achieving a certain age) – these are often referred to as “spendthrift trust”,

• Situations in which a person would like to provide gifts to individuals or organizations over time, and

• Situations in which the trust will continue to own significant assets, such as a business, which will distribute money or assets to multiple beneficiaries (such as in the form of dividends).

I Can Advise You as to Whether a Trust May Be Beneficial for Your Estate

After learning about your circumstances and objectives, I can advise you as to the options that might be best for your circumstances, whether it be a will or a will and trust.  Please call me today to schedule an appointment at a convenient time so that we may discuss your estate planning objectives.