When you acquire assets over the course of a lifetime, you pay taxes at the time you earn or purchase those assets. However, when you die, if you have a substantial amount to leave to your heirs, they could face additional taxes on your assets.
Estate taxes increase with the size and value of your assets. That means that your children, grandchildren or other heirs could face serious tax liabilities after your passing. Just like you put time and effort into ensuring that assets get divided in the way you prefer, you should carefully consider the tax implications of your estate and try to reduce potential costs.
There are many ways that you can reduce your heirs' potential tax burden. One of the simplest and most popular means of protecting assets from taxation is the creation of a trust. A well-designed and carefully planned and funded trust can reduce tax liability and even give you more control over the use of your assets after your passing. You can set specific terms on the use of trust funds to ensure that they aren't squandered or improperly distributed by your executor. If you already have an estate plan in place, it may be time to update it to include a trust as well.
A revocable trust can protect you and your heirs
For many people planning estates and last wills in Florida, the revocable trust is a great tool. This legal document, called a trust agreement, lets you outline how assets should get spent during your life and after you die. As the person creating the trust, you become the "grantor" or "settlor." The person or people that you assign to carry out your wishes after your death or medical incapacitation get called "trustee."
Just like with a more typical estate plan, you can change and correct your revocable trust while you are still alive, so if your family or financial situation changes, you can make appropriate corrections to your trust to reflect that.
Funding the trust
In order to ensure that your trust offers the most benefits for you and your heirs, your assets and bank accounts should be transferred to the trust before you die. This process, called funding the trust, ensures that the transferred assets are less likely to get tied up in probate court. After you die, your trustee will get charged with handling all your financial affairs. From paying taxes to distributing your assets, a trustee should faithfully perform the duties outlined in your trust.
Your heirs will have less to worry about regarding taxes, as well as a better understanding of what to expect from your estate when you create a trust as part of your estate planning process.