Are Trusts Still Useful If the Estate Tax Is Repealed?

Speculation and rumor have been running amok regarding Congressional action aimed at obliterating the estate tax. In the current year, the tax only affects estates with a value over $5.49 million. This means the tax is applicable to only a very small, less than 1%, part of the American population. But, given the hefty penalty for individuals with estates that exceed the threshold exemption, trusts are commonly used to spare these estates from the 40% tax. Some have questioned the necessity of the use of trusts if the estate tax was successfully repealed. While trusts do serve a unique purpose in this particular niche of estate planning, they have a number of valuable uses elsewhere.

Very simply, a trust is a split of legal and equitable title. A settlor (you) will move assets to a trust and appoint a trustee and a beneficiary. The trustee manages the assets for the benefit of the beneficiaries. The settlor may remain both trustee and beneficiary if he or she so chooses.

Among the most common reasons for individuals to use a trust is to avoid probate. Assets kept in a trust do not have to go through the lengthy and costly probate process and may pass immediately to beneficiaries upon the demise of the settlor. Trusts may also provide protection for the settlor in case of incapacity. If the trustee is a separate entity from the settlor/beneficiary, they may continue to manage trust assets without a court-appointed guardian or conservatorship. Finally, a well-structured trust can ensure trust assets are safe from creditors. This is especially helpful for beneficiaries that are unable or unwilling to responsibly manage their finances.

See Are Trusts Still Useful If the Estate Tax Is Repealed?, Elder Law Answers, June 30, 2017.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.