how to avoid estate tax with a trust

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While there are dozens of trust types,in order to remove assets from an estate to avoid the estate tax,the trust has to be what called渋rrevocable.?/strong>That means that at some point,you no longer own the assets placed in the trust ?the trust does. But even if you don own the assets,you can still benefit from the trust during your lifetime.

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Do Assets Put in Trusts Avoid Estate Taxes? Although there is no way to completely eliminate the estate tax through the use of a trust, a properly drafted trust instrument, coupled with knowledgeable estate planning, can help to reduce the estate tax burden.

One of the benefits of a trust is that assets placed in a trust can avoid going through state probate courts and therefore avoid one level of estate taxes assessed as probate fees. Another benefit of using trusts can be to avoid estate taxes by making use of the annual gift tax exemption (currently $14,000 per year).

Another way to bypass the estate tax is to transfer part of your wealth to a charity through a trust. There are two types of charitable trusts: charitable lead trusts (CLTs) and charitable remainder trusts (CRTs). If you have a CLT, some of the assets that are locked up in your trust will get passed on to a tax-exempt charity.

Name lower-income beneficiaries. The income generated by the trust’s assets are taxed at rate above most individual tax brackets, so they are usually distributed to the beneficiaries, who pay their individual tax rate.