A. David Aymond, Attorney at Law, LL.M. in Taxation Office Madisonville (985) 792-5220; Ponchatoula, Louisiana (985) 845-3414 Official Website: www.AymondLaw.com
Use a licensed Louisiana Attorney
Many national companies infer that Living Trusts help you avoid or reduce federal income or estate taxes. Some outright mislead you as to the tax consequences that arise as a result of their use. I hope to dispel some of the misinformation. Be sure to hire an experienced Louisiana Living Trust Lawyer to implement you Estate Plan.
Income Taxation of Living Trusts
Initially, it is important to understand that Federal Income taxation of Trusts is a complex topic and only general rules will be discussed herein. There are many types of trusts and each has its own tax rules and consequences. One sentence in a trust document can cause unintended tax effects. Living Trusts as the term is commonly used are typically revocable trusts with the person establishing the trust (settlor) usually also the beneficiary and the trustee. The trust can normally be terminated or modified by the settlor during his or her lifetime. The general income tax rule applicable is that the income of the trust will continue to be taxed to the settlor i.e. there is no income tax benefit from establishment of a Revocable Living Trust. There are many other types of trusts e.g. an irrevocable trust wherein property or cash could be transferred to the trust for the benefit of a child. If properly drafted the trust can have income tax benefits to the settlor. Others include charitable trusts, qualified personal residence trusts, medicaid trusts, special needs trusts etc. These are planning tools that can be very beneficial, but they are beyond the scope of our topic on Revocable Living Trusts.
Federal Estate and Gift Taxation of Living Trusts
Since a Living Trust by its very nature does not involve a completed gift of property to a third party, the property is normally counted in the estate of the settlor at death for federal estate tax purposes. There typically is no completed gift during the lifetime of the settlor on the standard Living Trust document and no estate planning is magically created by its existence. This is not to say that a Revocable Living Trust cannot be drafted to provide for maximum utilization of Estate Tax Credits and the Federal Estate and Gift Tax Marital deduction. It can be used to accomplish these goals, but so can traditional Last Wills with Testamentary Trusts. In Louisiana we also have the concept of a “usufruct” which very generally is a right to income or use of property for a period of time or possibly for life. The usufruct is sometimes used in Louisiana instead of a testamentary trust for Planning. The same or similar techniques are used whether you plan with a Last Will and Testament or a Living Trust.
To be clear on these tax issues, basically a typical revocable Living Trust is tax neutral, but it can be used as part of the tax planning when properly drafted to the same extent a properly drafted Last Will containing provisions for utilization of the estate tax exemption (or unified credit) and the marital deduction. Many other Estate Planning techniques can also be used during life e.g. lifetime gifts in trusts or outside of trusts, annual gifting (excluded from taxable gifts), freezing of asset values through gifts, charitable giving, Qualified Personal Residence Trusts (QPRT) etc. All of these can be used in conjuction with Living Trusts or more traditional planning.
Go to our official website on issues including Louisiana Successions, Wills & Trusts, IRS representation and Probate Law at www.AymondLaw.com.
Disclaimer: The statements made herein are general in nature and do not constitute legal advice and should not be relied upon. They provide a general discussion on the law in this area as it relates to Louisiana Living Trusts and do not constitute legal advice. If you feel you need an attorney you should see a licensed attorney and establish an attorney/client relationship and give your legal representative all facts needed to evaluate your situation. No attorney/client relationship is created herein with any person writing in questions or receiving responses based on the limited information provided. To create such a relationship with A. David Aymond, LLC, Attorney at Law, a written Attorney/Client Representation Agreement will be required. I can be reached at (985) 792-5220 or visit my main website at www.aymondlaw.com. Contact an experienced Living Trust Attorney and learn the facts about traditional Estate Planning with Last Wills or with a Revocable Living Trust and Pour Over Will. In any event seek the represenation of an experienced Living Trust Lawyer.
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