From our “Ask a Question” mailbag: I have heard that if I form a trust, I can help reduce the federal estate tax due at my death, is that true?
There are many types of trusts. Some help reduce the federal estate tax and others do not.
For example, a Revocable Living Trust is a useful tool for many reasons, but it does nothing to help reduce the federal estate tax. A typical trust used to reduce the federal estate tax is the Irrevocable Life Insurance Trust. These trusts can vary greatly, but their usual goal is to 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 $1,000,000 policy from your taxable estate, that is a $400,000 savings. There are other trusts, such as GRATs and Charitable Remainder Trusts that can also reduce the federal estate tax if used correctly.
To help you sort out which trust, if any, would help you, I would need to know (among other things) your assets, how they are owned, their approximate value and your estate planning goals. If you would like to know more, please feel free to set up a free consultation.
If you have any other questions about Estate Planning in Philadelphia or Philadelphia Trusts, feel free to contact our office for a free consultation.