Estate planning uses legal instruments such as trusts and wills to distribute assets among an estate's heirs. A trust is often used to establish the conditions under which younger beneficiaries can receive assets. Recent changes in estate taxes may significantly increase the value of estates for wealthy families in Michigan.
The latest laws on estate taxes went into effect on Jan. 1. They allow each individual taxpayer to protect a maximum of $5.25 million from estate taxes, with a tax rate of 40 percent on amounts above this exemption. The estate-tax exemption for couples is therefore now $10.5 million.
The exemption would have dropped to $1 million for individuals and $2 million for couples if Congress had not passed the new laws. In addition, the residual tax rate would have increased to 55 percent.
These changes have caused some wealthy parents to consider the effect that a tax-free inheritance of up to $10.5 million could have their children. These parents are specifically concerned that such an inheritance will cause their children to lose their willingness to work hard to succeed in their own rights. The solution to these cases may be silent trusts, a type of trust that ensures that the beneficiary is unaware of the presence of the trust until specific conditions are met.
Anyone who wishes to prepare a trust will typically need to fund that trust up front. The trust must be properly funded to avoid the possibility of a probate court amending the disbursement of funds to the trust's heirs, and the benefit of solid trust planning advice can never be understated.
Source: The Wall Street Journal, "Can You Trust Your Kid With $5.25 Million?" Kelly Greene and Arden Dale, Jan. 18, 2013