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Trust Formation - Tax Planning

A revocable trust can be revoked, changed, amended, or altered at any time during the grantor’s lifetime.  Generally they become irrevocable upon the death of the grantor.

If the trust is originally written as irrevocable, it cannot be modified or terminated without the permission of the trust beneficiary.  As many trusts are written with the trust beneficiaries listed as the Trustees, this may not be a problem should circumstances change but when planning, an attorney should be consulted and asked to explain the advantages and challenges you may face by choosing this option.

The financial benefit of an irrevocable trust as part of an overall estate plan is that it removes the assets from the grantor’s taxable estate.  That can significantly lower the tax liability on the income’s assets for the grantors.

Irrevocable trusts often include assets such as investments, a business, life insurance policies, or even cash. 

The new federal tax law passed by Congress in December of 2017 will increase the exemption amount for estate, gift, and generation-skipping taxes.  This creates a good opportunity to reap tax savings.  The new exemptions will be good for tax years 2018 through 2025 and although the past exemption was $5.49 million per person, it will now be raised to $11.18 million per person.  If an estate is over that amount however, estate taxes may still be due. 

Estate rules and laws change.  In addition, your personal circumstances may also change with marriage, divorce or the birth of children.  In order to achieve your long-term financial goals, discuss your estate options with an attorney.  This can help prevent surprises when it comes to estate taxes.  A periodic review of your estate documents with an attorney can help you utilize different tax-saving strategies.