If you are fortunate enough to have accumulated a valuable estate which you plan to pass down to future generations, it is imperative that you create a comprehensive estate plan to effectuate the transfer of your estate without losing a significant percentage of its value to gift and estate taxes. One estate planning tool that is often utilized to pass down family wealth is a legacy trust.
As you may already know, everything owned by you at the time of your death becomes part of your estate. When you die, all of your estate assets must be valued in order to determine the amount of any gift and estate taxes owed by your estate. Currently, the maximum gift and estate tax rate in Illinois is set at 40 percent, meaning that the value of your estate could be substantially diminished as a result of a gift and estate tax bill. Creating an estate plan that includes tax avoidance as one of its primary objectives can significantly decrease, if not eliminate entirely, gift and estate taxes.
Creating a legacy trust in the Illinois Quad Cities as part of your overall estate plan can help reach your tax avoidance objective. A legacy trust also offers additional benefits such as asset protection and continued control over gifted assets.
A legacy trust is an irrevocable trust established by you that allows you to name members of your family as beneficiaries. To fund the trust you can take advantage of the annual exclusion which allows you to make gifts of up to $14,000 (up to $28,000 if you are married and combine your gifts) to as many beneficiaries as you wish each year without incurring a gift and estate tax liability. Of equal importance, gifts made pursuant to the annual exclusion are not counted toward your lifetime exemption for gift and estate taxes. As the trust’s creator you are able to use the trust terms to retain a certain degree of control over the assets even after they have been transferred into the trust as well. For example, you could encourage future generations to continue their education by providing for the payment of college expenses out of trust funds.
If, for instance, you name a grandchild as a beneficiary who is a year old at the time you create the trust then the trust will continue for that child’s lifetime plus an additional 21 years. If a legacy trust appears to be a potentially beneficial addition to your estate plan be sure to consult with your estate planning attorney.
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