Most taxpayers are no longer directly impacted by federal estate taxes, which now only affect those with taxable estates over $5.45 million ($10.90 million for couples). These numbers are even adjusted for inflation. In addition, the income tax rates have increased for trusts and those making over $200,000 ($250,000 jointly) – top rates are now 37.1% for long-term capital gains and 57.1% or more for other taxable investment income.
Many of you may be wondering about whether to terminate or simplify your current “AB” revocable living trusts, and how you should adapt to these important tax changes. Some of you may even be beneficiaries of irrevocable trusts adversely impacted by the new income tax changes.
There are new solutions to these issues that can vastly improve the INCOME tax efficiency of your revocable trusts after your death, and/or the tax efficiency of existing irrevocable trusts. These solutions can ensure your beneficiaries receive the maximum “step up” in basis, and avoid “step downs” in basis – saving the family capital gains and income tax. In addition, these solutions can ensure avoidance of income being trapped in trusts at higher tax brackets and even allow shifting of income to family members or even charities who may be in lower tax brackets. This can all be done while maximizing the asset protection for the assets from creditors, in-laws and others.
These various changes may ultimately save your family hundreds of thousands dollars in income tax – if not more.
Attorneys have taken to calling this an Optimal Basis and Income Tax Efficiency Trust, or “OBIT” for short. While it is nothing radically new – merely various additional clauses added to your existing “AB” revocable trust (preexisting irrevocable trusts may require additional issues to be addressed), the innovative structuring and research behind it is substantial and should only be attempted by a specialist in this area of law.
For a free consultation, please contact us at (916) 440-8036.