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2 ways that a trust can protect an estate from taxes

On Behalf of | Sep 28, 2022 | Trusts And Estate Planning

Trusts are useful estate planning tools that can help you prepare for the unpredictable nature of aging. The trust that you plan and fund now can offer you stability in your golden years and also protect your legacy after you die. 

Trusts can help you limit how people use their inheritance and can protect you from collection activity later in life. Without planning, the property that you would like to pass to others is vulnerable to claims from creditors and to taxes if you have enough property in your name. 

Moving some of your most valuable assets to a trust can help you minimize two different forms of taxes. 

Estate income taxes

It is common for people to leave instructions for the liquidation of their property after they die. Holding an estate sale is an efficient means of turning your property into liquid capital. The sale of assets owned by your estate will usually trigger income tax obligations for the estate itself. 

However, you may be able to avoid or at least minimize estate income taxes if the trust manages the property and any income generated by the sale of trust assets. 

Federal estate taxes

For those who have estates that will be worth $12,060,000 or more, federal state packages may apply. You may have to pay a tax rate of up to 40% on the assets in your name when you die. Transferring property into a trust can diminish your personal holdings and potentially help minimize the estate taxes you have to pay. 

Creating a trust funded with your most valuable property when planning your estate could be a smart step if you have significant property or a reason to worry about taxes.