3 Trust Ideas for Reducing Estate Taxes

Trusts are an effective way to protect assets from tax, creditors and other forces seeking to take a piece of what your clients have built over their lifetimes. Here are three worth considering carefully: 

Charitable Remainder Trust: 

This kind of trust provides two big benefits .First, it creates a place for them to donate assets (that might be burdened with high capital gains), giving them an immediate charitable deduction. Second, the trust generates regular income for the client, while remaining tax-free. Upon death, the remainder of the trust goes to the charitable organization, also tax-free. For charity-minded clients, this is the best of both worlds, allowing them to benefit from their assets, while also giving back.

 Domestic Asset Protection Trust (DAPT): 

A DAPT is an irrevocable trust that is set up under the laws of the states, allowing a person to be a discretionary beneficiary of his/her own trust without creditors being able to access it. This means the trust is safe from a wide spectrum of threats, including divorce, bankruptcy and taxes. However, not all jurisdictions are equal in this regard. It’s important to choose a state with a short statute of limitations, and one where no statutory exception creditors have access. 

Dynasty Trust:

In all the tax reform talk about a potential repeal of the estate tax, it is sometimes lost that the GST, or Generation Skipping Tax, and Gift Tax will likely still exist. Clients wishing to leave a legacy to future generations of their family could suffer significant burdens from both taxes as they work to pass on their wealth. A dynasty trust is set up so that the trust can make discretionary distributions that avoid the GST. Numerous benefits include protection from estate tax, creditors, divorce, direct decedents and spendthrifts. Additionally, it allows for a consolidation of client capital.