How is tax burden minimized when using Trusts in estate planning?

Question

How is tax burden minimized when using Trusts in estate planning?

Answer 1

A trust doesn't reduce the tax issue.  The IRS sees revocable/grantor trusts as continuing to belong to the person who set them up.

The savings occur with fewer costs at probate and the ensurance that the titles of the assets go to the intended parties.  This is good when a husband and wife have, say, 2.5 million assets and the estate would normally go to the other spouse.  With proper trusts in place, if the 2nd spouse dies soon after the first, the same asset isn't subject to tax in both estates.

Answer 2

This is really too complicated to discuss here, and you'll need to have an individualized plan in order to determine whether it will help.

However, the only way a trust can reduce Federal estate taxes is for it to allocate assets to be used for the benefit of the surviving spouse, while not belonging to that spouse, thereby using the separate $2 million exemption (for 2008) for each spouse.

State inheritance taxes may differ, but a trust is unlikely to help for that.