Trusts may be efficient tool in estate planning

Estate planning can be a tedious process, especially for consumers who have significant assets, portfolios and properties to leave to heirs. This lengthy process is complicated by uncertainty surrounding estate taxes and how they will be modified in 2011. Last year's 45 percent tax rate and $3.5 million exemption expired at the end of 2009. Currently, there are no estate taxes. In 2011, no more than $1 million of an individual's estate will be exempt from estate taxes and the tax rate will increase to 55 percent, if the government chooses not to act. Many consumers are left wondering how to protect their assets and ensure their heirs are not left with significant tax bills. For individuals with assets that are likely to increase in value, setting up a trust may be the answer.

For example, consumers with a large amount of money or property can put the assets into a charitable remainder trust, allowing the donor to continue use of the property or asset and receive income from the donation. The donor can claim a deduction the year the trust is set up. Financial professionals recommend using the overage income to set up a life insurance policy for heirs and placing the insurance in an irrevocable trust to protect it from estate taxes, Bankrate reports.

"The objective would be to replace the value of the asset," Landmark Financial Advisory Services president Timothy Hayes told the money Web site. "For somebody who has some kind of property - appreciated securities, art collection, land - this is the way they do a lot of these things."

Other types of trusts exist that may also reduce or eliminate estate taxes. For example, some consumers may want to leave money or assets to their children but are hesitant to do so for a variety of circumstances: their child may be going through a divorce or does not manage money well. In these instances, consumers may choose to skip a generation and leave the assets to their grandchildren, with the income and principal of the trust going to their children, Bankrate reports.

Many families who choose to set up trusts seek out the help of either individual or institutional trustees who ensure the account is set up correctly and, depending on the family's wishes, may have discretion over which family members receive the trust and when. Even with the help of a trustee, creating trusts can be confusing, so consulting with a licensed tax preparer can help individuals make the best decision for themselves.


Liberty Tax Service provides computerized income tax preparation and electronic filing. Each tax office offers customers audit assistance, a money back guarantee, and free tax return checking.