The Next Item on your Estate Tax Planning To Do List
By Ann Ramage, CPA, Tax Partner | Family, Executive & Entrepreneur Advisory Services Team
As part of your estate plan you may have established a living or revocable trust, but have you funded it yet? If not, consider putting its funding at the top of your to do list to complete the initial execution of your estate plan.
A living or revocable trust “the trust” is a trust that allows the person establishing the trust (the “settlor”) to retain the rights to amend the trust as circumstances or intentions change. With these broad powers, you, as settlor, have rights to fund the trust, substitute assets, use the income generated by the trust’s assets, or even take the assets out of the trust for your own benefit during your lifetime. While some initial effort is required to retitle the assets to the trust as well as maintain the trust via executing all documents in the trust’s name as trustee, funding does not limit your ultimate access to the assets during your lifetime.
Reasons to Fund Your Living or Revocable Trust
Included below are some compelling reasons to move funding the trust to the top of your list of to dos versus just having the assets pour/fund the trust at the settlor’s death via administration by the settlor’s will:
- Avoids interruption of income flow to the family/beneficiaries upon death, disability or incompetence of the Settlor.
- Maintains privacy of asset disposition to family/beneficiaries as assets held in a Revocable Trust are not subject to Court reporting requirements that would make the reporting part of public record.
- Avoids/reduces delays in distributing cash/assets that may otherwise occur if the Court is involved in the Estate’s administration.
- Allows an on-going business held in the Revocable Trust to continue operations with fewer interruptions.
- Requires less accounting, administration and judicial supervision than a trust created and funded under will.
- Allows more flexibility in appointing appraisers/guardians of assets that may be required if the Court is involved in administration.
- In some states, provides a layer of insulation from the settlor’s creditors.
- Avoids assessment of probate tax in those states and localities that have provisions for the tax.
- In Virginia, probate tax is assessed at a rate of $0.10 per $100 of estate value (no probate tax is assessed if the estate is under $15,000).
- Virginia localities may assess a local probate tax of up to 1/3 of the Virginia probate tax.
While you may already have incurred costs to set up the trust as part of overall estate planning, ongoing costs during the Settlor’s lifetime are not anticipated to be significant as the trust is expected to maintain the Settlor’s Tax Identification Number so that generally no separate trust tax return filing will be required. One other item to note and consider as you are revisiting your estate plan is that in some states, use of a Revocable Trust may prohibit a surviving spouse’s right to share in the deceased spouse’s property.
Completing the trust’s funding currently allows you to continue your proactive role in planning for your estate’s administration. It will also relieve some of the burden on your family/beneficiaries and even your Estate’s executor at a later, already difficult time to ensure your family/ beneficiaries do not encounter financial hardship due to administrative issues.
Questions on your specific estate planning needs? Keiter can help. Contact our Family, Executive & Entrepreneur Advisory Services team | Email | 804.747.0000
Additional Estate Planning Resources:
- The Importance of an Annual Estate Plan Check Up
- Tax Cuts and Jobs Act: What You Need to Know about Estate, Gift, and Trust Provisions
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.