People most often rely on trusts to protect assets from bad decisions made by heirs who are ill-prepared to handle an inheritance. Families rely less on trusts to avoid taxes. A trust helps you put conditions on when or in what way your assets are divvyed up among your heirs when you die.
A trust can own a business and rapidly appreciating assets in order to avoid or reduce estate tax consequences. But the federal estate tax is now over $10 million, or $5 million per person. Even New York State has increased the base amount that would be subject to New York State death taxes from $1 million to $3,125,000, as of April 1, 2015. Gift tax limits at the federal level are the same as the estate tax limits (i.e., greater than $5 million per spouse). And in New York, there is no gift tax regardless of the amount. So, there can be some benefits to gifting assets to children in the State of New York. Gifts to trusts on the federal level count toward the excludable amount.
As for the cost of creating a basic trust plan, it can run anywhere from $1,500 to $4,000 or higher. Cost is a function of complexity. The plan ought to include a healthcare proxy and a will, too. Other costs include changes made to the trust if it’s revocable and paying someone to administer the trust after you die.
Families sometimes create trusts to protect assets from nursing homes in the event certain variables are met. But more commonly, parents create trusts to put in place rules on how, when and why money would be distributed to children or grandchildren. It’s a way to keep parenting even after you “have shuffled off this mortal coil,” as Shakespeare wrote.
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