People who have accomplished their financial objectives have reached a plateau, but there is another level of security to take into consideration. You have to protect that wealth for the benefit of your loved ones, and there are certain types of trusts that can be utilized to satisfy this aim.
Before we look at wealth preservation trusts, we should explain the lay of the land when it comes to death taxes. There is a federal estate tax that people in all 50 states must contend with, and it carries a hefty 40 percent maximum rate.
There is an unlimited marital deduction that allows you to leave unlimited assets to your spouse free of the estate tax. Beyond this, there is a $5.43 million federal estate tax exclusion in 2015. This is the amount that you can transfer to people other than your spouse before the estate tax would become applicable.
We practice law in the state of New York, and in our state, there is also a state-level estate tax. Until April of this year, the New York state estate tax exclusion is $2,062,500. It is subsequently going to go up by about $1 million per year until it matches the amount of the federal estate tax exclusion in 2019.
For the time being, there is a considerable difference between a state-level estate tax exclusion and the federal exclusion. As a result, you could be exposed to the state estate tax even if you are exempt from the federal tax.
Now that you have the information that you need to evaluate your level of exposure, we can look at the tax efficiency value of trusts. There are revocable trusts, and there are also irrevocable trusts. Assets that have been conveyed into a revocable trust would still be part of your estate for tax purposes, because you retain direct control of the assets.
Things are different with irrevocable trusts. With this type of trust, you are surrendering incidents of ownership in the eyes of the law. For this reason, generally speaking, the assets in this type of trust would not be part of your taxable estate.
Trusts that are used for estate tax efficiency purposes would include grantor retained annuity trusts, generation-skipping trusts, charitable lead trusts, charitable remainder trusts, and qualified personal residence trusts.
Take Action to Preserve Your Wealth
Federal transfer taxes can play havoc with your financial legacy, but you can mitigate your exposure if you are proactive about the implementation of tax efficiency strategies.
If you have questions about wealth preservation, our firm can provide answers. We offer free consultations, and you can send us a message through our contact page to set up an appointment: Smithtown NY Estate Planning Attorneys.