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Minimize death taxes with trusts

Estate taxes, sometimes called death taxes, are taxes taken from the transfer of an estate upon a person’s death. Often expensive, these taxes can take around 50% of the value of an estate, after a certain threshold. With payment due nine months after an individual’s death, many families must liquidate inherited assets to account for the cash demand.

Thankfully, there are ways families can minimize these estate taxes with trusts. Setting up trusts with comprehensive estate plans can help an individual preserve their estate and continue to take care of their family after death.

Types of estate-preserving trusts

Massachusetts remains one of the 15 states in the U.S. that still has an estate tax. In addition to federal estate taxes, this makes Massachusetts one of the most expensive states in which to transfer an inheritance. The following types of irrevocable trusts can help individuals avoid many of these taxes:

  • Bypass trust: A bypass trust keeps safe up to $11.4 million, the 2019 exemption limit. This money is then subtracted from the value of the estate, perhaps allowing for the estate to enter a new bracket and incur fewer estate taxes. Beneficiaries of these trusts can access the money any time and pass the remainder to heirs upon death.
  • Irrevocable Life Insurance Trust (ILIT): An ILIT allows an individual to place their life insurance policy into a trust. Stocked with enough money to cover premium costs, these trusts avoid estate taxes and reduce total value. Upon the grantor’s death, beneficiaries can access the insurance payout through the same trust. The government taxes life insurance payouts as income, not as part of an estate.
  • Qualified Personal Resident Trust (QPRT): A QPRT places a residence into a trust. A house is among the most valuable assets a family can own, so removing it from the estate often provides ideal tax breaks. The value of the home does freeze in a trust but is not subject to estate taxes upon inheritance. When the terms of the trust complete, the home returns to the estate or heirs of the grantor.
  • Charitable trust: Many individuals may form charitable trusts to reduce the value of their estate. Grantors design these trusts to pay out to select charities over the years. When the grantor dies, the remaining cash reverts to their heirs. Some savvy estate planners place stocks or other appreciating assets in these trusts.

Bring any questions to a local attorney

Dying in Massachusetts is an expensive proposition for family providers. Working with a lawyer familiar with managing large estates can help reduce these costs and allow grieving families to focus on healing and care.

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