You might worry about whether your heirs may squander their inheritance. Properly structured, a pre-inheritance trust, or PIT, allows you to set conditions on how your wealth is to be disbursed once you pass on. Your heirs will still be able to benefit from the trust’s assets, but they won’t be at liberty to waste it.

To accomplish this, however, the PIT must be properly set up. Hart & David can help you put together a pre-inheritance trust that will protect your assets from wastefulness as well as estate and gift taxes.

Estate Tax Planning

Your estate, or the sum total of your assets, is normally subject to extraordinarily heavy estate taxes upon your passing. One of the functions of a PIT is to mitigate the effect of those taxes or eliminate it entirely. Since a PIT is an irrevocable trust, the assets you place in it are no longer considered to be yours in the eyes of the law. Thus, they are removed from your taxable estate.

Of course, in order to successfully protect your assets from heavy estate taxes when you pass on, the trust must be structured in a way that limits your control of the assets within it. You may still have some influence over them depending on various circumstances, such as if you are an executive of an LLC placed in the PIT, but you cannot be the trustee of the trust.

Gift Tax Planning

Technically, there is no limit on the worth of assets you can place in a pre-inheritance trust, but there is a limit on how much you can gift to others without it being subject to heavy gift taxes. Currently, the lifetime exemption limit on gift taxes is somewhere over $5 million, which allows you to place quite a bit into the trust without it being taxed. Thus, your taxable estate can be reduced by up to roughly $5 million without any gift taxes whatsoever.

One of the great things about a trust is the assets within it will continue to grow. Thus, if you place an LLC in the trust, its worth can continue to grow over time. Since the gift tax only applies to the value given, not the growth afterward, it is best to form the trust before the worth of your assets reaches the exemption threshold. Otherwise, placing them in the trust may subject them to heavy gift taxes that might have been avoided if you’d transferred them sooner.

Asset Protection

Not only does placing assets in trust reduce your estate tax liability, it will also protect them against creditors, disgruntled exes, and so forth. Again, the assets placed in the trust are not technically considered to be yours any longer, and thus cannot be seized in the event of a lawsuit.

In addition, your beneficiaries also do not technically have control over the assets in the PIT, so if they should happen to go through a divorce or lawsuit, their interests are protected. This has the added benefit of preventing them from squandering their inheritance as well.

Correct Structuring

Structuring a trust to successfully protect your assets will require legal expertise on tax laws, regulations over asset transfers, and document drafting, to name a few things. Hart & David provides you with that expertise, so don’t hesitate to contact us today for a free consultation.

Jonathan D. Herpy

Jonathan D. Herpy

Partner
Joel J.H. Funk

Joel J.H. Funk

Partner
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