When you have been financially successful throughout your life, you need to measure your level of success as it compares to the amount the estate tax exclusion. In 2014, the federal estate tax credit or exclusion in North Carolina is $5.34 million. This is the amount that you can pass on to your heirs before the estate tax would become a factor. If you are exposed, you may wonder if a trust could protect your family wealth.

Trusts in Charlotte NC

Revocable and Irrevocable Trusts

Some people are under the impression that you are surrendering personal control of assets when you place them into any type of trust. If you think this way, you may assume that assets conveyed into a trust are not going to be subject to the estate tax.

If you are under this impression you should understand some of the differences between revocable and irrevocable trusts.

Revocable living trusts are very popular. One of the reasons for this popularity is the fact that you don’t surrender control of assets that you convey into this type of trust. It is revocable. You can revoke it and assume direct personal control of the assets any time you want to.

You actually control the assets even while they are in the trust, because you can act as both the trustee and the beneficiary while you are living.

Because of this arrangement, assets that have been conveyed into a revocable living trust would be exposed to the federal estate tax (although married couples can double their exemption with a trust). If you are wondering why anyone would want this type of trust, revocable trusts are used by people who want to arrange for future asset distributions outside of probate.

In addition to revocable trusts, there are also irrevocable trusts. When you create this type of trust, you are in fact surrendering incidents of ownership. You no longer fully control assets that you have conveyed into the trust.

Because of the way that these trusts are set up, generally speaking, assets that have been conveyed into an irrevocable trust would not be looked upon as part of your taxable estate by the Internal Revenue Service.

One type of irrevocable trust that can be used to protect family wealth is the generation-skipping trust. Imagine each generation of your family being faced with the estate tax. With this type of trust you can make your grandchildren the beneficiaries. However, your children can benefit from the earnings of the trust.

In the end two generations of your family were able to enjoy the benefits, but only one round of taxation was imposed.

Legacy Wealth Planning

This is a brief look at trusts as they apply to wealth preservation. Contact us to schedule a free consultation if you would like to ask detailed questions.