You have built your estate for years, and you probably want to save as much of it so that your family can have a comfortable, secure life when you are gone. Currently, the federal government can tax up to 40% of any estate that surpasses the amount of $11.7 million for individuals and $23.4 million for married couples. Additionally, as a resident of the state of Illinois, your estate will be subject to the Illinois estate tax of 0.8% to 16% if it is above $4 million.
If your assets cross these thresholds, you can still save on estate taxes. There are several different legal ways in which you can do this, but irrevocable trusts are the most efficient.
As with any other type of trust, when you create an irrevocable trust you become the grantor of the trust and can appoint your heirs as its beneficiaries. The difference between an irrevocable and revocable trust is that in irrevocable trusts a grantor cannot change or terminate it at any time.
What makes an irrevocable trust valuable as an estate planning tool is the ability to transfer funds to it before a person passes away. Once the assets are under the ownership of the trust, they would not technically be a part of your estate. A trust funded in this way is called a living trust and there are several types of living trusts you may consider.
- Grantor retained annuity trusts (GRAT)
- Spousal lifetime access trust (SLAT)
- Charitable lead annuity trusts (CLAT)
- Qualified personal residence trusts (QPRT)
Trusts funded as part of a will are called “testamentary trusts,” but since the assets are still part of the estate when the person dies, the assets would be treated as part of the estate and possibly subject to estate taxes.
You need to remember that if you opt to put your assets in an irrevocable trust, you will lose control of them. If you decide to set up an irrevocable trust, it would be in your best interest to seek guidance.