Ben Franklin once mused that, “In this world nothing can be said to be certain, except death and taxes.” Taxes may be one of life’s few certainties, how taxes will affect your finances and your legacy over the long term is anything but certain. Guarding assets from potential changes to the tax code is an important component of long-term planning.
Consider a Grantor Trust
If you have not yet explored the benefits of creating trusts to protect your estate assets from unnecessary taxation, now is the time to do so. Various kinds of trusts protect assets in different ways.
So-called “grantor trusts” are a popular option due to their straightforward benefits associated with lifetime estate tax exemptions. Essentially, you would set up an irrevocable trust to benefit your children, grandchildren, or other loved ones while remaining responsible for the trust for income tax purposes. This approach allows you to reduce the size of your estate (leaving less value to be taxed upon your death) while simultaneously shielding asset value gains from your annual tax burden.
As a bonus, a grantor trust—while benefiting your loved ones—doesn’t factor into lifetime gifting limits. It therefore can preserve additional gift opportunities for high net-worth individuals and their families.
If a grantor trust interests you, act quickly. In recent years, legislation has been proposed that would limit the benefit of this type of trust.
Retroactive changes are rare. For example, the proposed Sensible Taxation and Equity Promotion (STEP) Act would raise the capital gains tax treatment of estate assets. However, it would not change the tax treatment of grantor trusts that are in place when the law would go into effect.
Although the STEP Act and other proposed tax changes are far from certain to pass, they underline the importance of taking advantage of favorable tools like grantor trusts before they disappear. Our team can also advise you and your family regarding the potential protective benefits of other kinds of trusts as well.
Ensure That Your Assets Are Properly Titled
Your major assets, including your home, need to be properly titled to ensure that they remain financially protected and easily transferable in the event of your death. A title is simply a legal document that lists the owner of the asset and the ownership transference details concerning the asset upon the listed owner’s death.
You may be under the impression that detailing how you wish an asset to be transferred in your will is sufficient. However, proper titling affects the ways in which an asset may be affected both while you remain the owner and after the ownership of the asset transfers. Under certain circumstances, improper titling can lead to an outcome that overrides the instructions detailed in your will, which can have profound tax consequences.
Speak with our team about how titling options, including “transfer on death,” “payable on death,” “joint tenancy,” and “survivorship marital property” may affect your asset protection strategy as it relates to the potential evolution of the tax code.
Begin Employing Proactive Tax Strategies Today
Although dealing with your “certain” taxes can feel like a nuance, employing proactive asset protection strategies now will help to ensure that your tax-related stresses are minimized to the greatest extent possible both now and down the road.
The experienced team at Ferguson Timar is always available to provide trusted tax guidance that will serve your family’s immediate and long-term financial needs. For personalized feedback concerning your asset protection approach, connect with our team via email or give us a call at (714) 204-0100. We look forward to speaking with you.