What Happens To A Family Trust After Death – Discussing your estate plan with your beneficiaries can be difficult. But doing so can prevent unfortunate heirs from finding important documents or interpreting your wishes. In addition, early consideration of estate plans can help beneficiaries plan more effectively for their future, managing their expectations of what may or may not be possible.
Talk to your advisor and estate attorney for guidance on planning a family meeting about your estate plan. Also, if a face-to-face discussion is difficult, consider writing a letter with your estate planning documents to explain your wishes to all beneficiaries, as well as executors and trustees.
What Happens To A Family Trust After Death
Your estate is distributed as directed in your will or according to your state’s probate laws if you do not have a will.
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You own the property with your spouse or other person as “Joint Tenants with Right of Survivorship” (JTWROS). The survivor or “last dead” becomes the new sole proprietor.
You create a trust and transfer ownership of assets to the trust. Assets must be transferred to the trust during your lifetime.
Assets go to: Principal and income beneficiaries named in your trust. These assets can be spread over several generations.
An estate trust allows you to specify how and when your assets will be distributed to your loved ones.
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Talk to your advisor to help you assess what your assets are now, how they will be passed on to your heirs, and how to make changes, if necessary, with the help of your estate planning attorney. Trusts are commonly used estate planning vehicles. However, many beneficiaries do not consider how their trust structure can affect their overall financial picture, what they spend and how they invest to meet their expectations and plan for the future.
Additionally, because trusts are not required to follow the same structure, beneficiaries of multiple trusts can carefully consider how, when, and in what order they receive distributions—and whether the distributions they receive may affect their non-trust resources.
Irrevocable trust distributions can vary from being completely tax-free to being taxed at higher marginal tax rates, and in some cases, even higher. Therefore, understanding the tax implications is critically important – which is why we focus on irrevocable trusts in our discussion below. In contrast, distributions from revocable trusts are not taxable to the beneficiaries.
Grantors must also check whether the features of the trust they create are beneficial to their heirs (and their decisions) as originally intended.
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Your J.P. The Morgan team, along with your estate planning attorney, can help you gather and evaluate the information you need. This article will help you get started
Your relationship with the trust (grantee, beneficiary) can improve your lifestyle and fund your long-term goals, such as paying for a child’s college education or making charitable gifts. Consider:
In this example, the widow, along with her own assets, is also the beneficiary of several trusts that were funded after her husband’s death. Together, the accounts contain $25 million in investable assets that the widow has access to at various levels:
This example requires the widow to spend the assets in each account in the following order. First, hold assets in an estate that is subject to generation tax (GST). Second, expenditure on assets outside GST subject assets. And finally, spending on property outside the estate that is not subject to GST.
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To minimize future transfer and income taxes, the widow worked with her advisors to implement her spending, investment and gifting strategy:
We understand that trust can be complicated, with many factors to consider. Your J.P. The Morgan team, our wealth advisors, wealth strategists and trust officers, can work with you and your tax advisors to create a distribution strategy that meets both your day-to-day expenses and your long-term estate plans.
1 For purposes of this discussion, we assume that the trust, grantor, and beneficiary are all US. are organizations or individuals. Results may vary for foreign trusts, grantees and/or beneficiaries.
2GST exception is USA. That’s the same amount without estate and gift taxes: currently $12.06 million and doubles for couples. However, those funds will roughly be cut in half when the current law expires at the end of 2025, unless Congress acts otherwise. In 2022, the GST tax rate is 40%.
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3 Family trusts hold assets in excess of the amount a widow can inherit from a spouse’s estate free of estate tax. The property will be included in the widow’s estate after her death.
4 A GST non-exempt trust is subject to GST when distributed to grandchildren or more distant descendants.
5 A bypass trust—sometimes referred to as a family trust or credit shelter trust—receives an amount that can be exempt from estate tax after the spouse’s death. It cannot be included in the gross estate after the death of the widow and therefore will not be subject to estate tax. A GST-exempt trust is not subject to generation-skipping transfer tax and can therefore be passed from one generation to the next without incurring additional estate, gift or generation-skipping tax liability.
6 A widow can benefit from the trust property as long as it has charitable beneficiaries.
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