There are many legal mechanisms that can help you create a comprehensive estate plan. However, unless you have a background in law, it is in your best interests to consult with an experienced attorney before you set out to preserve your legacy.
Depending on the size and complexity of your estate, you may wish to set up a trust. An experienced attorney can carefully review your estate and explain the benefits and disadvantages of trusts.
For example, irrevocable trusts, while useful for preserving estate assets for beneficiaries, do come with certain drawbacks depending on the purpose for which the irrevocable trust was created:
Loss of control — When you create an irrevocable trust, you often lose direct control over any property owned by the trust. Being the trust maker, or settlor, you may be barred from reclaiming property once it is placed within an irrevocable trust. Furthermore, when you create an irrevocable trust and name beneficiaries, you may not be able to retain the authority to amend the trust, nor add or subtract beneficiaries. Instead, the trustee holds the property on behalf of whomever you initially named as beneficiaries of the trust.
Separate taxation — Unlike a revocable trust, an irrevocable trust is often subject to separate taxation. If the trust earns a minimum of $600 in a year, the trustee will be required to file a federal income tax return (IRS Form 1041) for the trust and either pay income taxes on income retained in the trust or prepare Schedule K-1s for each beneficiary who receives a distribution from the trust within the tax year.
Gift tax — The transfer of assets to an irrevocable trust may also be subject to a gift tax consequence. Although the annual gift tax exemption amount for 2019-2020 is $15,000, transfers to an irrevocable trust may not benefit from this exemption subjecting the transfer of any amount to a gift tax consequence.There is language you can include in an irrevocable trust to allow the trust to utilize the $15,000 annual gift tax exclusion for each beneficiary of the trust, but this requires special planning and an experienced estate planning attorney.
Income tax rates — Trusts must also pay federal income taxes. However, the income tax rates for income retained by an irrevocable trust (i.e., not distributed to the trust beneficiaries) are compressed often resulting in a higher income tax consequence than the individual income tax rates.
Trusts are effective tools for protecting property and assets. A skilled estate planning attorney can assess your estate plan and recommend a sound course of action that ensures your legacy is enjoyed by your heirs for years to come.
Consult with experienced estate planning lawyers in Florida
At the Law Offices of Hoyt & Bryan, LLC, we explain estate planning law in an easy-to-understand manner. Whether you need help creating a trust, administering an estate, or resolving an elder law issue, you can count on us to provide you with sound guidance. To discuss your estate plan with a knowledgeable attorney, call (407) 977-8080 or contact us online. To better serve our clients we have office locations in Oviedo and Altamonte.