Readers in Lee County are likely aware that, when a person passes away, a portion of the assets, properties and other resources that make up their estate are subject to estate taxes. For the very wealthy, estate taxes can be quite hefty and cost beneficiaries a large portion of their inheritance. The rate can reach up to 40 percent for couples with a net worth of at least $10.5 million and individuals whose estates are worth as much as $5.25 million.
One method of protecting assets from the estate tax is through a trust. Trust administration is different for different types of trusts, but, in some cases, the funds put into a trust may not be taxable. One such type of trust, that is commonly used to protect assets from taxation, is known as a “Jackie O.” trust. These are a type of charitable trust, which requires a specified amount to be donated each year for a specified period of time.
The tax for these trusts is determined based on what will be left after the donations across the given time frame. Depending on interest rates and other factors, these types of trusts can result in no estate taxes, but a beneficiary still receiving a sizeable inheritance. While these seem to provide an easy loophole, they do not work for all situations. In order to accrue interest that eclipses the amount to be donated and taxed, these types of trusts require a sizeable starting balance, making them best for those with substantial wealth.
If a Jackie O. trust is not appropriate for your situation, there may be another type of trust that will work for you. It may be of benefit to consult with an experienced attorney in order to develop an estate plan that fits your needs.
Source: Los Angeles Daily News, “$100 billion: How America’s richest family avoids taxes, maintains its wealth”, Zachary R. Mider, Sep. 3, 2013