Does a living trust save taxes?
For federal income tax purposes, as long as you act as the trustee or the co-trustee and the trust uses your social security number for its taxpayer identification number, your living trust will be treated no differently than if you had not created the trust. Likewise, you will not save any “death” taxes (state inheritance or federal estate) simply because you have created a living trust. Although, a properly prepared living trust can reduce death taxes; exactly the same savings can also be achieved by a will. How do I transfer ownership of my property to the trust? In order to avoid probate, you must transfer the ownership of each and every asset to the trust. To transfer real property, a deed must be signed and recorded; transfer of publicly traded stocks and bonds will likely require the services of a broker; transfer of partnerships and closely held corporations may require the review of the governing instruments to determine whether other partners or stockholders must consent to s
No. This is one of the biggest misconceptions about revocable living trusts. The income of the trust is considered yours. If you are the creator of the trust as well as the trustee or co-trustee, you report the income on your personal income tax return. If the trust is in effect when you die, the assets are included in your estate for federal estate tax purposes. However, if your estate is large enough to be hit by the federal estate tax — $1 million — your lawyer can incorporate tax-saving measures into your trust, such as charitable gifts, a marital deduction trust and a credit-shelter trust. Also, a living trust doesn’t protect assets from creditors while you are alive and in control. And the trust doesn’t protect assets if you are sued.
You can utilize the same tax planning strategies in a Will as in a Living Trust. The use of a Living Trust does not in and of itself save taxes, but a Living Trust may be one vehicle for tax planning. You should consult an attorney to find out ways in which you might limit taxes on your assets. Q: Can a Living Trust be used to obtain Medicaid benefits? People who are facing the need for long-term custodial care often explore Medicaid as a source of coverage. Putting your own assets into a Revocable Living Trust does not shield or protect those assets for Medicaid purposes. Q: Who can serve as a trustee of a Living Trust? A trustee can be an individual, such as a family member or friend, or it can be a bank or other financial institution. If you choose an individual to serve as your trustee, you want to make sure that he or she is both trustworthy and able to manage your assets. Some people prefer a neutral third party, such as a bank or trust company. These institutions do charge fees,
The same tax planning strategies can be utilized in a Will as well as a living trust. The use of a living trust does not in of itself save taxes, but a living trust may be one vehicle for doing tax planning. Q: Who can serve as a trustee of a living trust? A trustee can be an individual, such as a family member or friend, or it can be a bank or other financial institution. If you choose an individual to serve as trustee, you want to make sure that he or she is obviously trustworthy, and is able to manage your assets. Some people prefer a neutral third party, such as a bank or trust company. These institutions do charge fees, usually based on a percentage of the trust estate, and you may want to interview several trust companies before you choose one. Q: Is a living trust right for everyone? For many people, a living trust is an ideal arrangement both for management of assets and as a Will substitute. However, it is not right for everyone. Under a living trust, the trustee who manages t
Saving taxes is commonly cited as an advantage of living trusts. That really is a myth. Living trusts do not inherently save taxes. Living trusts can be used as a tool to save taxes, as can a testamentary trust. See Credit Shelter Trusts. But, there is no unique tax advantage specific to a living trust. There are principally two taxes to discuss when talking about living trust taxes. They are: • Income Tax, and, • Estate Tax. As discussed at What is a Living Trust?, the most common type of living trust is a revocable living trust. If you have a revocable living trust, you can revoke it at any time. You can name yourself as the trustee and use the assets in the trust however you like. In fact, you could put your checking account in the revocable living trust and continue to pay your personal bills from that account as always. So, you probably aren’t surprised when I tell you that, for tax purposes, income earned by that revocable living trust is attributed to you as trustor of the trust
