Many people fall for the estate planning myth that establishing a trust avoids taxes. This is not normally true and in certain situations may actually increase taxes. It is very important to work with a local estate planning professional to handle all aspects of your estate plan creation.
There are two different types of taxes that might apply to assets you place inside a trust or your state overall. These are the income tax and the estate tax. The person who creates the trust typically pays for income tax on any revocable living trust. This means that there is no difference between that person’s individual taxes and the trust’s taxes.
Until a trust becomes irrevocable, these rules apply. In an irrevocable trust, which is one that cannot be amended or revoked, income held at the trust is taxed at rates that are typically close to the highest individual tax rates.
For very wealthy people, however, additional estate taxes may apply. Even if your trust does not avoid taxes, there are still other benefits to using this estate planning tool. For example, although you can transfer your assets through your will after you pass away, a trust gives more of a shield of protection since your asset transfer is not part of any public record. When this transfer happens through probate, though, it is a matter of public record and other people may be able to search for it and see it. You also get more control over when and how your assets transfer when you use a trust.
If you have other questions related to the estate planning process and need support and determining how to move forward, contact an estate planning lawyer today.