In recent years the use of a trust agreement in even the most basic estate plan has increased dramatically. One reason for this is the numerous and varied goals that can be reached by using a trust agreement. If you are considering the inclusion of a trust agreement in your comprehensive estate plan and have never created a trust before you likely have a number of questions and concerns relating to trusts. For example, you may be wondering “ Will my income taxes change if I create a trust? ” Unfortunately, there is no simple answer to that question; however, a better understanding of how different trusts work may help you answer the question as it relates to the trust you intend to create.
Creating a trust agreement could change your personal income tax obligation, depending on the type of trust you create. Trusts are divided first into testamentary and living trusts. A testamentary trust does not become effective until your death while a living trust takes effect as soon as all the formalities of creation are complete. Living trusts are further divided into revocable and irrevocable living trusts.
All trust agreements allow the “Maker” (you) to appoint a “Trustee” to manage the trust assets and administer the trust terms all for the benefit of a third party beneficiary. The assets you use to fund your trust can be just about anything, including cash, stocks and bonds, personal property and/or real property. When an asset of any kind is transferred into a trust agreement, ownership of the asset changes. That change of ownership may impact your tax obligations. If you transfer an asset into an irrevocable living trust, for example, you give up all ownership interests in the asset as well as all control over the asset. If that asset was valuable it will directly decrease your new worth. That, in turn, could impact your personal tax obligation, particularly if the asset was an income producing asset. Because there are no hard and fast rules regarding the tax implications of transferring an asset into a trust it is even more important that you consult with your Illinois estate planning attorney before transferring any assets into the trust.
If you have additional questions or concerns about trust agreements, tax avoidance, or your Illinois estate plan in general, contact the experienced Illinois estate planning attorneys at Nash, Nash, Bean & Ford, LLP by calling 309-944-2188 to schedule your appointment today.
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