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How Can a Living Trust Minimize Taxes?
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The potential estate tax savings used to be considerable for a large estate because federal exclusion amounts were low and AB Trusts could be drafted for couples to minimize estate taxes. However, in 2011 and 2012, the estate exclusion has increased to $5,000,000. There is now "portability" so that the unused portion $5,000,000 exclusion amount can be used by the surviving spouse’s estate if both spouses die before 2013. This increased estate exclusion amount and "portability" means that few estates will owe taxes and avoids the need for an AB Trust for most estates. AB Trusts still can be useful to protect assets from creditors of the surviving spouse and can provide post death asset control as well as estate tax benefits especially if you and your spouse don’t die in 2011 and 2012. Most living trusts are designed to avoid probate and have no effect on estate taxes. Since your date of death is unknown, all these confusing tax rules mean you should assume the most likely worse case scenario that your estate taxes and, if estate taxes may be reduced or eliminated by a trust, you should consider such a trust. If there are no potential estate taxes to reduce, you need to determine whether it makes sense to put your home in trust to avoid probate or consider the other alternatives discussed on this site.
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