Living Trust

If you're someone looking into trusts, by this time you already know about a living trust. You know that living trusts avoid probate and all related costs. It can also be used to eliminate estate taxes for couples. The bottom line is that a living trust is a great way of managing one's estates. However, despite the advantage of not paying any probate costs with living trusts, there still remains the issue of living trust taxes, which, contrary to common perceptions, you still have to pay.

Among the taxes that you still need to pay regardless of having a living trust is your estate taxes. You living trust may contain terms and conditions that can save some taxes, but takes effect only upon the grantor's death. Also, income taxes have to be paid for your living trust. With regards to income tax, the grantor of the living trust is always considered as the owner of the trust for income tax purposes. And as owner, it means that he is supposed to report all trust income on his or her personal return. He/she will write down the data under "grantor trust" income tax rules.

According to the current tax rules, estates that are valued under $2 million dollars are exempt from federal estate tax. So unless you have less than $2 million, be prepared on paying your part of estate taxes or state inheritance taxes.

There are two general kinds of living trusts in the US. One is revocable while the other is irrevocable. And despite the taxes above, living trusts are much preferred because the grantors of the trust can pass down their assets to their heirs without probate, which they can save some money and definitely some time. Probate courts charge processing fees, which is based on the net worth of the deceased and the process is also considered a public transaction. Because most people want to have more private proceedings after their death, they opt to have a living trust instead which maintains their privacy.

As mentioned above, living trusts taxes are not sheltered under the U.S. Federal estate tax rules. However, there are ways where couples or even individuals can manage to shed off some of the taxes involved. It all boils down on how you draft your living trust. One way of getting a bigger estate tax exemption is for the couple to include a formula clause in their living trust draft.

Another disadvantage of living trusts, which also concerns living trust taxes, is the fact that beneficiaries do not save on estate or state inheritance taxes. Moreover, when you set up a living trust, you have to pay the costs immediately, and the expense can really be high. Not unlike other asset management plans where you pay some of the expense after the grantor's death. For a living trust you will need to address the problems of living trust taxes upon the drafting of the documents.

However, despite these setbacks or disadvantages, with proper handling, careful planning and meticulous drafting, a living trust remains one of the most efficient and the best asset management tools in the country today. It is a great way of preserving the family's hard earned money and protecting their assets or properties. So despite the living trust taxes, people are still going for living trusts.

Living Trust Taxation |