To Trust or not to Trust: Part III…Taxes and Privacy are Factors in Creating a Trust

Another reason a person might want to establish a trust is the privacy a living trust bestows. A will needs to be probated, or in layman’s terms, submitted to the court for review. The will becomes part of the public record for any person to examine.  Anyone, after a little research, can know the amount and type of assets a beneficiary received. Scam artist can approach beneficiaries and them hit up for money or make them susceptible to fraud. As sad as it might seem, there are also inheritance search firms that search the public records for large estates and seek out potential heirs to file claims against an estate. A majority of the time, the “surprise” heirs appear in estates going through the intestate process, but also can occur in testated probate.

While a will with a living trust is still probated, those wills are very basic and offer no real information on the assets in a person’s estate. This limits the public knowledge component of a will.  For example, when Elizabeth Edwards died most of her estate was in trust and most newspapers, possibly incorrectly, assumed she disinherited her husband.  With a trust, no one in the general public will be able to find out.

The size of your estate and your current estate status also can indicate if some type of trust is necessary. In 2011, the federal estate tax exemption level is $5 million per person with a thirty-five percent (35%) tax rate on assets in excess of the exemption level.  Currently, starting in January 1, 2013, the federal estate tax exemption is set to return to a $1 million exemption level and a fifty-five percent (55%) tax rate. A plain living trust will not insulate an estate from estate taxes though more complex trusts can provide asset protection.

In addition, a number of states have state estate taxes of their own with varying levels of exemptions and rates. As a note for the local metro area, DC has an exemption of $1 million. Maryland has a $1 million exemption but also has an inheritance tax. Virginia has no estate tax. Thus, if someone gets close to certain threshold levels – state or federal – in their estate creating a living trust makes sense and something more complex is probably desirable.

You can read Part I and Part II in this series on whether to create an living trust or not.

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About Chris Guest

I am a trust and estate planning attorney working in the Washington, DC metro area. I offer comprehensive estate planning, trust administration, probate services and general business counseling for accountants, attorneys, business owners, consultants, federal and local government employees, retirees, other business professionals and other individuals.
This entry was posted in Estate Planning, Factors for Creating, Federal Estate Tax, Revocable Living Trusts, Trusts. Bookmark the permalink.

4 Responses to To Trust or not to Trust: Part III…Taxes and Privacy are Factors in Creating a Trust

  1. Pingback: To Trust or not to Trust: Part IV…Real Estate | VA Estate Planner

  2. Pingback: To Trust or Not to Trust…Part 5: Age and Time Reasons to not Create a Revocable Living Trust? | VA Estate Planner

  3. Pingback: To Trust or Not to Trust…Part VI: Simple Estates Might Delay the Need to Create a Revocable Living Trust. | VA Estate Planner

  4. Pingback: To Trust or Not to Trust…Part VII: Simple Finances and Less Complex Family Dynamics Might Delay Need for a Revocable Living Trust. | VA Estate Planner

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