Revocable Living Trusts – Do They Save Estate Taxes?
Nick Houle, one of our Estate Planning partners in our Minneapolis office, gave an one hour presentation on estate tax planning at the South Dakota Soybean Association annual meeting in Sioux Falls, SD yesterday. I attended the event with Nick and talked to many farmers about succession and estate planning.
One of the questions that was asked at the speech and during the convention was whether a revocable living trust will eliminate or save estate taxes. Much of the marketing material surrounding the use of a revocable living trust tends to lead farmers to this conclusion.
The reality is that a properly drawn will result in paying the same amount of estate taxes as using the revocable trust. The primary benefit of the revocable trust is the elimination of most probate costs, especially if you own real estate in multiple states.
Since a revocable trust can be changed at any time, there has not been any gift made so whether you own assets in a revocable trust or not, they will still be included in your estate.
To properly save estate taxes during your lifetime involves either making direct gifts to your heirs now (to prevent appreciation of these assets from being in your estate) or putting them into an IRREVOCABLE TRUST.
Sometimes if it sounds to good to be true, its not.
Paul Neiffer, CPA
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
Paul, because the trust you refer to would be set up at death (via a testamentary trust in the will provisions) it would have zero impact on protecting from guardianship for the couple. Clearly, a will isn’t in effect until death, and guardianship issues arise prior to death. Therefore, a revocable trust established while living would provide all the benefits. Benefits a will cannot.