July 08, 2016
A Living Trust Can Help Leave Your Assets to Your Grandchildren – Not the Government!
A lot of people complain about high taxes. Looking at what the government takes from your weekly paycheck can be frustrating. But, it could be worse. Even people who don’t complain about taxes (there are a few) and understand it takes money to run the government would complain if they understood that it is possible for the government to tax the same money over and over and over. And, it happens more than you think.
Leaving Money to Children and Grandchildren
Here’s a scenario: You and your spouse leave a very large amount of money to your daughter without a trust – or, in a poorly drafted living trust (yikes!). The money is taxed when it is transferred to your daughter. Your daughter leaves money she inherited to your grandchildren without a trust. Guess what? You’ve got it – that money is taxed again!
It is upon learning this that a well-meaning grandparent suggests leaving the money to their grandchildren rather than the child to avoid one of those tax events. Not so fast! In that scenario the federal generation-skipping transfer tax could apply.
Pass Your Retirement Accounts down to Your Children and Grandchildren
Another thing to think about is the income tax on your retirement accounts. If you were to leave it to your children or grandchildren outright, they may take it out of the retirement account all at once and pay unwanted taxes.
Instead of paying the unwanted taxes, you could name your living trust the beneficiary of your retirement accounts and include the stretch-out language (which most living trusts don’t contain!) so that you can stretch out the required minimum distributions over the child or grandchild’s life versus paying all the income tax all at once.
Living trusts can be complex legal documents, so they should be prepared by experienced estate planning lawyers in Michigan who have experience with trust and tax planning strategies. If you are interested in talking with an attorney with this experience, call our office at (888) 390-4360 to attend one of our Free Life Care Planning Workshops to learn more about strategies to leave assets to children and grandchildren.