How can a living trust save on estate taxes?
If the net value of your estate when you die is more than $1,000,000, federal estate taxes must be paid (starting at 37%). (The exemption is scheduled to increase to $1,500,000 in 2004, $2,000,000 in 2006, $3,500,000 in 2009, with repeal of the federal tax by 2010. Congress must extend the law beyond 2010 for changes and/or repeal to continue beyond 2010.) If you are married, your Living Trust can include a provision that lets you and your spouse leave twice the exempt amount tax-free to your Beneficiaries, saving hundreds of thousands of dollars in estate taxes plus thousands of dollars in probate costs.
If you die in 1999 and the net value of your estate is more than $650,000, federal estate taxes (starting at 37%) must be paid. If married, your living trust can include a provision that will let you and your spouse leave up to $1.3 million estate tax – free, saving $258,500 . (Under current law, this $650,000 “exemption” will increase to $1 million by 2006.) If you own a family business or farm that qualifies, up to $1.3 million of your estate could be exempt from estate taxes. Your living trust could then let you and your spouse leave your family up to $2.6 million estate tax – free.
If you die in 2007 or 2008 and the net value of your estate (assets less debts) is more than $2,000,000, federal estate taxes (starting at 45%) must be paid. If you are married, your living trust can include a provision that will let you and your spouse combined leave up to $4 million estate tax-free to your loved ones, saving $900,000. In 2009 the estate tax exemption increases to $3.5 million each or $7 million per couple. In 2010, the estate tax is basically eliminated for one year. Then, in 2011, the estate tax exemption reverts back to a previous amount that appears to be $1 million per person. There is currently legislation being considered that would create a more consistent approach to this, but nothing has been settled yet.
