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Irrevocable Tax Trusts

Irrevocable Tax Trust Attorneys Serving Western Pennsylvania

When it comes time to think about your estate, you should be sure to consider the tax implications of the planning decisions you make. Of course, the average person is not well-versed in federal and state inheritance tax laws, so it is important to have strong legal guidance on your side, especially if you choose to create an irrevocable tax trust. With the help of Heritage Elder Law & Estate Planning, LLC, you can feel confident knowing that your estate is in good hands. Contact our office today to discuss irrevocable tax trusts with a legal team you can count on.

What is an Irrevocable Tax Trust?

Irrevocable tax trusts were developed to, in most cases, avoid the federal estate tax. This is a fairly complicated subject matter, but the main premise of a tax trust is that you write a set of rules for your family, such as who gets access to the income in the future and who gets access to the principal in the future. Once you write your set of instructions, you also have to put somebody else in control of your assets forever. After the trust is signed, you hand over the family rule book, never to touch it or change it again. By doing so, you have made a full relinquishment of your assets, retaining no power to modify or amend. This is a very different type of trust.

However, the irrevocable tax trust does have its place. If you are one of the lucky few to have a net worth in excess of $11 million, it can serve as a great option to protect assets from federal estate tax after three years. However, very few people have this problem in our country.

Can I Avoid Inheritance Tax?

More often, this kind of trust is used for avoiding Pennsylvania Inheritance Tax. When someone other than a spouse or a charity inherits your estate, that person will pay an inheritance tax to the Commonwealth of Pennsylvania. If a child or grandchild inherits the estate, Pennsylvania is entitled to 4.5%. When assets are left to a brother or sister, Pennsylvania takes 12%, and if the estate is left to anyone else, such as a niece, nephew, or friend down the street, Pennsylvania is entitled to 15%. Therefore, by using a tax trust, the inheritance tax that would have been due is protected as long as the assets are in the trust long enough. In Pennsylvania, that time period is 12 months.

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With so much to consider as you begin the estate planning process, it is important to weigh all of your options, including an irrevocable tax trust. However, this is just the beginning of the conversation. There are other considerations, such as capital gains tax, that may outweigh the benefits of the tax trust. Only your qualified estate planning attorney can walk you through these pitfalls and help you make the right decision for you. Contact Heritage Elder Law & Estate Planning, LLC today to learn how we can assist you through every step of the process.

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