Tax benefits of estate planning- part I

Most people understand the importance of preparing a will- but they do not know that preparing an estate plan has significantly more benefits. And while a lot of people assume that estate plans are only for the ultra-rich, this could not be farther from the truth.

Anyone who has assets, such as a home, bank account, stocks, bonds, etc., can benefit from an estate plan. This is especially true because estate plans can help minimize (or in some cases, eliminate) estate taxes.

If you are curious about how all this works—read on.

Setting up an irrevocable trust

If you are researched estate planning options, you have likely learned that there are several types of trusts. For tax purposes, setting up an irrevocable trust can be beneficial. This type of trust allows the grantor (the person who establishes the trust) to transfer assets from their taxable estate, into a trust. Assets can include anything from cash, to life insurance policies to stocks and bonds. What makes this trust irrevocable, is that the terms set forth by the grantor, cannot be modified without permission of the beneficiaries.

Irrevocable trusts can be especially beneficial for individuals who work in an industry in which they are vulnerable to lawsuits, such as attorneys, doctors and in some cases, general contractors. Once a person’s assets are transferred into trust, the assets are owned by the trust and its named beneficiaries.

They also come with tax benefits.

When someone dies, the deceased taxpayer’s assets may be subject to an estate tax, and estate taxes need to be paid before their assets can be distributed to their named beneficiaries. Since assets within a family trust fund are not subject to estate tax, establishing an irrevocable trust can potentially save you- and your heirs, a significant amount of money.

Have questions? Call Hughes, Snell and CO., PA today

Trying to read, digest and understand tax law can be tricky. In some cases, it can feel as if you are trying to read a foreign language. What is more, is that the tax code changes every year—and staying on top of the latest modifications can be hard.

That is where our company comes in.

If you have questions about the tax benefits of establishing a trust, or you would like to know more about how different types of trusts might be taxed, call our office today. We will be happy to connect you with an experienced, seasoned professional who will be happy to answer your questions.