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3 ways trusts can offer tax efficiency

On Behalf of | Nov 27, 2023 | Estate Planning - Trusts

Estate planning is a thoughtful process aimed at ensuring the smooth transfer of assets to your loved ones after you pass.

However, navigating the complex world of taxes can be a daunting task. Trusts provide a strategic avenue to minimize tax burdens and optimize your estate plan.

1. Tax-deferred growth with irrevocable trusts

Irrevocable trusts serve as a powerful tool to shield your assets from hefty tax bills. By transferring assets into an irrevocable trust, you remove them from your taxable estate. This means that any appreciation in the value of these assets occurs within the trust, potentially escaping significant estate taxes. The key benefit here lies in the tax-deferred growth of these assets, allowing your beneficiaries to inherit more without the burden of immediate taxation.

2. Leveraging the gift tax exclusion with lifetime gifts

Trusts also provide an avenue for making lifetime gifts to your heirs while taking advantage of the gift tax exclusion. Establishing an irrevocable living trust allows you to transfer assets to your beneficiaries during your lifetime, reducing the size of your taxable estate. The gift tax exclusion allows you to give a certain amount each year to each recipient without incurring gift taxes.

3. Ensuring flexibility with revocable living trusts

Revocable living trusts offer a unique advantage by allowing you to maintain control of your assets during your lifetime while providing flexibility in estate planning. While these trusts do not provide immediate tax benefits, they offer the advantage of a seamless transition of assets upon your passing. Additionally, by allowing you to amend the trust as needed, you can adapt to changes in tax laws or family circumstances.

As one of the 34% of Americans with an estate plan, incorporating a trust can further relieve unneeded tax burdens for you and your loved ones.