Four Common Estate Tax Planning Trusts In Florida
Even though the Sunshine State does not have an estate tax and federal lawmakers recently raised the IRS threshold, taxes are still a concern in many estate planning scenarios.
The estate tax is not the only issue facing The Villages residents as they prepare their estate plans. Certain kinds of property, most notably rent homes and other investment real estate, are subject to a different tax basis upon inheritance, and this change could cost your heirs thousands of dollars.
To avoid these consequences, an attorney can set up a variety of different inter vivos trusts. Since different families have different needs, this post will highlight an option in different categories. There are many, many others.
Credit Shelter Trust
These vehicles are outstanding for married couples who risk exceeding the estate tax threshold. Essentially, when one spouse dies, the other spouse receives a life estate instead of a direct inheritance. Then, when the surviving spouse dies, the children become the beneficiaries of the trust.
Assume Bob and Jean each have a $4 million estate. When Bob dies, Jean receives a life estate while retaining legal control of her own property. When Jean dies, their children inherit Jean’s estate, which consists of her $4 million and Bob’s $4 million. Thus, the children save a considerable amount of money.
Qualified Terminable Interest Property Trusts are ideal for potentially controversial subsequent marriage situations. They work in much the same way as credit shelter trusts, but the original grantor (or a successor) retains control over the assets after the first beneficiary dies.
Assume that Bob and Jean have a QTIP trust. When Bob dies, Jean receives a life estate. The difference is that, when Jean dies, Bob’s children retain control over the entire $8 million. In this way, Jean cannot leave money to individuals or groups in a manner inconsistent with Bob’s wishes.
A Qualified Personal Residence Trust removes a single person’s primary residence, which is usually the largest asset in the estate, from the entire process. The grantor transfers legal title of the residence into the trust. Although s/he is no longer the legal owner, the trust includes a provision allowing the grantor to live in the residence rent-free for a period of years. Then, the beneficiaries become the owners.
If Bob was a single person, while he’s still alive, he could transfer his home to the Bob Family Trust. The BFT allows him to live in the house rent free and also would probably be responsible for paying property taxes and any other associated bills.
Individuals in The Villages who want to leave large gifts to charity but also have significant obligations to meet and do not want the charity to be stuck with a large tax bill often use Charitable Remainder Annuity Trusts. The assets go into a trust, but the grantor still receives an income stream from that property, perhaps in the form of interest payments.
Assume Jean wants to give all her money to the National Rifle Association. The assets go into a trust, and Jean still receives some trust income. When Jean dies, the NRA is the beneficiary of whatever remains.
Connect With Experienced Attorney
The money you worked so hard to ear should go to your heirs and not to the government. For a free consultation with an experienced elder law attorney in The Villages, contact the Millhorn Elder Law Planning Group. We have offices in Oxford and The Villages.