Wealth preservation is a very important consideration for high net worth individuals. When you are in a position to pass wealth along to your loved ones after you are gone you may enjoy a certain peace of mind, but you have to be concerned about asset erosion.
The federal estate tax is a looming threat to your financial legacy. This tax carries a 40 percent maximum rate, so we are talking about a very significant level of taxation.
It is possible to transfer unlimited assets to your spouse free of the estate tax, because there is an unlimited marital deduction. We should point out the fact that you must be married to an American citizen if you want to use the unlimited marital deduction.
Asset transfers to anyone other than your spouse are potentially subject to the federal estate tax. Fortunately, there is an estate tax credit or exclusion. The amount of this credit is $5.45 million in 2016. This is the amount that you can transfer before the estate tax would become applicable.
When you’re calculating the value of your estate, you must include the value of your real property, and this can be an issue for many people in Texas who own valuable tracts of land.
Wealth Preservation Trusts
There are certain types of trusts that can be used to gain estate tax efficiency. These wealth preservation trusts are going to be irrevocable trusts. When you create this type of trust, you cannot change your mind and take back the assets, so you do surrender control to a certain extent.
At the same time, there are wealth preservation trusts that do provide income. For example, if you convey assets into a grantor retained annuity trust, you can take annuity payments throughout the term of the trust. If it is funded with highly appreciable assets, a tax efficient transfer to a beneficiary may take place after the expiration of the term.
There is also a type of trust called a charitable remainder trust that can provide tax efficiency, but you would receive income from the trust along the way.
You could reduce the taxable value of your home if you were to convey it into a qualified personal residence trust. A beneficiary would assume ownership of the home after the term expires, but you could live in the home as usual for a period of time that you decide upon when you create the trust.
As you can see, there are wealth preservation trusts that can provide the best of both worlds to a certain extent.
Schedule a Free Consultation
If you would like to discuss wealth preservation strategies with a licensed professional, contact us through this page to schedule a free consultation: Dallas TX Estate Planning Attorneys.