Why Families with Wealth Should Consider Establishing a Trust
Estates and gifts over a certain value can bring significant taxes, often as much as 40 percent of the total value. According to the Congressional Budget Office, federal revenues from estate and gift taxes in 2020 totaled $17.6 billion. That can be alarming if you want your wealth to stay in your family.
Although recent legislative changes have reduced the number of taxpayers subject to estate tax liability, the CBO projects that estate tax revenues could exceed $40 billion per year by 2030. Families with considerable assets should consider using trusts in their estate planning to help avoid massive estate tax liability and preserve as much wealth as possible for succeeding generations.
How a Trust Might Benefit You
A trust refers to a legal structure in which assets and property are held by a person, known as a trustee, who has a fiduciary relationship with both the creator of the trust, known as a grantor or trustor, and those who will benefit from the trust’s assets, known as beneficiaries.
Trusts can benefit families with considerable wealth by allowing them to preserve and pass on that wealth to succeeding generations without the time and expense of probating a will. Because the assets of the trust are legally “owned” by the trust rather than the grantor at the time of their death, those assets are not considered part of the grantor’s estate or subject to probate and estate taxes.
Trusts can also help families prevent heirs from mismanaging the family’s wealth. When a family’s wealth is formed by sophisticated assets, such as business ownership interests or securities, a trust can ensure that those assets are managed by experienced professionals. Putting family wealth in experts’ hands increases the chances that it will grow over time, even if income or principal from the trust are paid to beneficiaries.
In setting up a trust, a grantor or grantors can also establish conditions for their descendants and heirs to benefit from the family’s wealth. The terms of a trust could limit the amount of money that a beneficiary can receive from the trust or condition the receipt of money on the beneficiary pursuing a productive profession.
Different Types of Trusts
Although trusts come in many different forms, each with its own distinct benefits and uses, some of the most common types of trusts include:
- Living trust, which allows the grantor to enjoy the benefits of the trust assets during their life
- Testamentary trust, which is established and funded upon the grantor’s death according to the terms of their will
- Asset protection trust, which is often used to qualify disabled individuals for government benefits
- Special needs trust, which allows families to ensure that resources are provided for a disabled family member
Each type of trust can be designed as either revocable or irrevocable. With a revocable trust, the grantor retains the right to change the terms of the trust, add or remove beneficiaries, withdraw assets from the trust, and even terminate the trust altogether. With an irrevocable trust, the trust cannot be changed by the grantor once it is established.
How a Lawyer Could Help
A North Carolina estate planning attorney can help you and your family by:
- Discussing your and your family’s needs and goals for estate planning
- Identifying whether a trust can best serve your family’s objectives
- Advising you on which types of trusts might work for your family
- Guiding you through the process of structuring a trust for your family
- Preparing the trust documents and other necessary documentation to fund the trust
Contact Mullen Holland & Cooper Today for Help in Establishing a Trust for Your Family
If you have questions about whether a trust can help you protect your family’s wealth, call or contact Mullen Holland & Cooper today to learn more about trusts and how they can work for your family. Discuss how our experienced NC estate planning attorneys can help you with establishing a trust in an initial consultation.