Will A Trust Help Me Avoid Estate Taxes?

Suzanna De Baca -- Expert Business Source, 5/9/2007 6:50:00 AM

Dear Suzanna:

My wife and I own a successful home building business and we know we need to do some estate planning.  We have heard that setting up a trust can help our kids avoid inheritance taxes.  Is this true?

From – “Trusting in You”

Dear “Trusting.”

Trusts are legal vehicles that can help you a variety of ways, but it would be misleading to make a blanket statement that they can help your heirs avoid estate taxes.   It would be more accurate to say that certain types of trusts, if set up correctly, may allow your heirs to save on estate taxes. 

If you are considering transferring your business to your children, it is important for you to consult with an attorney who is an expert in trust and estates as this is an ever changing and particular field.  A trust is only one method you might consider for a business transfer.

It is accurate to say that all trusts allow the property in the trust to avoid the probate process, which can be expensive and time consuming depending on your state of residence.  When a trust does not exist, the transfer of property at an individuals death goes through the court system (other than jointly held property and things that bypass beneficiary designations such as insurance and pensions).  It is the courts that determine the legality of the will, and it may occur in large estates that much of the estate is taken by taxes and legal fees. Avoiding probate is one of the main benefits of a trust, in addition to their ability to protect minors, possibly minimize federal taxation, and allow you to pool together your assets for future instruction after your death.

So, what is a trust?  As an individual, you are considered a legal entity.  A trust is also a legal entity.  If you set up a trust it is a separate legal entity into which you can transfer assets.  Once you’ve transferred assets, they become the property of the trust, which holds the property for your benefit or the benefit of those whom you designate.  Therefore, a trust is a vehicle to which you can transfer property and still control it even if it is no longer officially owned by you.

There are numerous different kinds of trusts, with many distinct features and purposes.  Establishing a trust and retitling the assets that you plan to transfer can be costly and take a lot of time.  You and your spouse would be prudent to consult with an estate attorney to see what estate planning techniques are right for you,  your business, and your heirs.

Suzanna de Baca is President of Private Capital Solutions Group.  She is a Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS), 7 Hanover Square, New York, NY 10004, (888) 600-4667.  Securities products/services and advisory services are offered through PAS, a registered broker/dealer and investment advisor. Private Capital Solutions Group is not an affiliate or subsidiary of PAS.