With the estate tax exemption level being so high, what’s the point in establishing an inter-vivos trust?
Years ago, the federal estate tax had a very low exemption threshold level, coming in at $400,000 in 1985, $600,000 in 1995 and $1.5 million in 2005, according to the Heritage Foundation. These low threshold levels compelled people to establish inter-vivos trusts during their lifetimes, into which they would place many of their assets. By doing this, these assets could avoid the estate tax because the creator of the trust, known as a “settlor,” no longer owns the assets. They are not part of his or her estate; hence, they generally are not subjected to the estate tax.
The creation of such trusts represented a sound estate planning strategy by middle class families in the 1980s, 1990s and early 2000s, and, depending on the size of your estate, they remain an attractive option to many affluent individuals. The need for such trusts has been reduced, however, by a far higher estate tax exemption threshold level, which currently stands at $5.43 million. While the savings from having a trust might have outweighed any estate tax impacts years ago, that may not be the case with the higher exemption threshold level.
So, you are right to question whether you need an inter-vivos trust. For many people at or nearing retirement age, the need for inter-vivos trusts has not changed, but the rationale behind creating one has. Trusts remain attractive estate planning vehicles for settlors who anticipate having to receive nursing home care or assisted living services later on in life. By placing assets in what is known as a “Medicaid Trust” five years before they begin receiving such services, settlors can enhance their eligibility for Medicaid. And just as estate taxes cannot be levied against assets not owned by a settler, Medicaid cannot seize assets after your death to pay for the nursing home care or assisted living services you received during your lifetime.
People interested in protecting their estates against Medicaid expenses or estate taxes should consult with an experienced estate planning attorney, who can assess whether they can benefit from an inter-vivos trust or some other estate planning vehicle.
Greg T. Rinckey, Esq., is a founding partner at Tully Rinckey PLLC, a full-service law firm located in Colonie. For more information about the firm’s estate planning, personal injury, employment law, real estate, family and matrimonial law, or bankruptcy practices, please visit www.1888Law4Life.com. If you would like your legal question or topic answered in the next issue, please contact Greg Rinckey at 518-218-7100 or [email protected] 1888law4life.com. The information in this column is not intended as legal advice.