Some of the reasons listed here:
Despite the proposed high estate, GST and gift tax exemptions and whether there’s repeal, trusts will remain extremely popular for many non-tax reasons, including:
- family governance/succession/education;
- ability to override the Prudent Investor Act, with less liability than with a delegated trust, holding one security (public or private) without diversifying (directed trust);
- diversifying broadly into private equity, alternate investments, commercial and residential real estate, without extensive fiduciary liability (directed trust);
- ability to work with investment advisors of the family’s choice (directed trust);
- asset protection/wealth preservation;
- promotion of social and fiscal responsibility in the family, thus promoting family values (directed trust);
- privacy;
- beneficiary quiet;
- lessening family and family advisor personal liability as fiduciaries (directed trust);
- disability planning;
- special needs planning; and
- savings of state death taxes, state premium taxes and state income taxes
It’s due to the above-mentioned non-tax reasons and state tax reasons that it may not be prudent to automatically pass assets, outright and directly, to one’s children even if the federal estate tax is repealed. Consequently, clients will continue to transfer assets to trusts, most likely GST and dynasty trusts. It’s important to note that the gift tax will most likely always remain to limit transfers and income tax shifting. The House’s proposal is for the gift tax exemption to double in 2018 and to remain when and if the estate and GST taxes are repealed effective Jan. 1, 2024. This increase provides a huge opportunity for families to fund trusts, as well as increase their funding for all of the previously mentioned reasons. Additionally, the gift tax rate would drop from 40 percent to 35 percent.
