After your death, your heirs will be required to pay federal estate and transfer of property taxes for them to enjoy and manage the assets you left them.
Without a plan, there is a possibility that they would be paying more for legal fees and taxes combined than the total value of assets you leave them with. There’s also a big chance that your business will be bought by competitors at a price much lower than its real value. An estate plan would make sure that your legacy would die with you. An estate plan protects you, your heirs, and your business.
A critical and beneficial part of an estate plan is a trust. A trust is a powerful and dependable tool that can be used to protect your business and beneficiaries. It is often used in estate planning to help in tax reduction and guard your business assets against creditors and competitors who want to get the most from what was left. With trusts in estate planning, your family or beneficiaries are able to continue your legacy or get the most money out of a good deal when it comes time to sell the business.
A trust involves four entities:
- Property – the asset, business interests, collectibles, securities
- Grantor – the person in charge of setting and transferring property to the trust
- Trustee – a financial legal advisor who manages the trust legally
- Beneficiary – receiver of the trust’s property
There are two basic kinds of trusts. The first one is an irrevocable trust–in which the terms are permanent and can only be given to the trust’s beneficiaries after the grantor’s death. The second kind is a revocable trust–in which the terms can be changed as long as the grantor is living.
A trust works by putting in a legal document or an account the transfers you want to make when you die. Let’s say that you put a $1 million value of assets in an irrevocable trust and your total assets are valued at $6 million.
With applicable tax exclusions based on specific circumstances, you can ask your lawyers or the financial institution who manages your account if you are exempted to pay federal estate tax for an amount over $5 million.
With the $1 million you put into the trust, the total amount left is $5million, which falls under the exempted value. Your heirs would not need to pay any federal estate tax because of the $1 million dollars protected in the trust.
As the grantor of the trust, you hold so much power over your assets even after death. An irrevocable trust cannot be changed, so you must plan well the terms of the trust–when the transfers are distributed, the assets for each heir, and the beneficiaries you put. A trust can help you define the future of your business and assets, as well as your family’s. By protecting your assets under a trust, you get to keep them away from the reach of greedy creditors.