Many
trusts were set up over the years to help protect wealth from estate taxes. But
the federal estate-tax exemption has risen steadily in recent years, to $5.25
million, or $10.5 million for couples, from $1 million in 2003. This year,
Congress made the exemption permanent and indexed it to inflation. As a result,
fewer people risk triggering the tax, and some trusts established in years past
are no longer needed.
Trusts are powerful legal
creations, yet they can often be misunderstood by the very people who have them.
Some want to know how to set up a trust, while others are asking “how do I get
rid of the trust I already have?”
These conflicting questions are
not an indictment of trusts, but they are really the consequences of our
current legal and tax environment.
Trusts, of course, are amongst
the most powerful tools for moving wealth outside of the reach of the gnashing
teeth of the estate tax. However, the estate tax level has not been predictable
for much of the last two decades. While the estate tax level was recently twice
set to drop to lows not seen in a decade or more, Congress miraculously hiked
it back up to far more generous exemption amounts with far less damaging
taxation percentages.
In other words, some taxpayers
have found that a trust might not be doing the work for which they established
it simply because Congress got it right. Following this thought, The Wall Street Journal recently
published an article titled “How to Dismantle a Trust.”
As the article notes, there is a
way to properly blow up your trust. On the other hand, do not be too quick with
the dynamite. Why? There are far more important reasons to keep your trust
independent of any present or future estate tax exposure.
For example, the probate
avoidance enjoyed through a properly funded revocable living trust can save
time, money and inconvenience should you become incapacitated and upon your
death. Moreover, the inheritance protection available for your heirs can be an
important consideration.
If you have yet to set up a
trust, there are still many great reasons to establish one for yourself and
your heirs. On the other hand, if your current trust is more burden that
benefit, then the trust can be shut down.
Reference: The Wall Street
Journal (September 20, 2013) “How to Dismantle a Trust”