When Using a Trust as an Alternative to a Will is a Good Idea

Former mayor of New York, Ed Koch, passed away with an estate worth 10 million dollars. Most of his money was made after he left office. He left the majority of his estate to relatives and charities. He left the residuary estate to three of his nephews. However, because of the federal estate tax the nephews will probably receive significantly less because the tax for estate portions over $5.25 million is 40%. Moreover, New York will collect a state estate tax as well. Collectively, the estate will owe more than 3 million in taxes. 

To avoid this type of problem Koch could have set up a trust and made lifetime gifts to lower the estate tax. The trust would have enabled him to avoid probate and maintain his privacy. Additionally, he could have avoided the expensive legal fees, and delays within the probate proceeding. Moreover, the trust provides certain protections which would have shielded portions of the estate from generation skipping transfer tax and creditors. 

See Bonnie Kraham, Protecting Your Future: Better Plan May Have Saved More of Koch’s Estate, Record Online, Jul. 11, 2013.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.