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Posted on Thursday, January 14th, 2016 by Peter Klenk

From our “Ask a Question” mailbag: My CPA told me that I should form a trust to help the save federal estate tax payable at my death. I think he may have called it a Revocable Living Trust. Is that good advice?

Your CPA was likely talking to you about several different trusts that might be useful to you. Some trusts can reduce the federal estate tax and others do not. A Revocable Living Trust is a useful tool and your CPA might have mentioned it as a tool to avoid probate, but it does not help reduce the federal estate tax. A revocable trust can be revoked, and the assets taken back into your own name, so it is still part of your taxable estate.

Your CPA likely also mentioned an “Irrevocable Trust.” An irrevocable trust can be designed so the assets you put into the trust can never come back to you and are not taxed at your death. For example, a typical irrevocable trust is the Irrevocable Life Insurance Trust (ILIT) which, when drafted correctly, can remove your life insurance from your taxable estate. This can provide a huge savings because the federal estate tax rate is 40%. If you use an Irrevocable Life Insurance Trust to remove a $2,000,000 policy from your taxable estate it provides an $800,000 savings. As I charge from $1,500 to $2,500 to draft an Irrevocable Living Trust (depending on the complexity) that is a huge return on investment.

To help you sort out which trust would help you I would need to know how your assets are held, their value and your overall estate planning goals among other things.

If you have any other questions about Estate Planning in Burlington County or New Jersey Trusts, feel free to contact our office for a free consultation with one of our Burlington County Estate Planning Lawyers.

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