For many Mississippi residents, a living trust is a great way to protect assets and put a plan in place to pass on your assets upon your death. It generally covers investments, real estate, bank accounts, vehicles, and valuable personal property. Typically, this document is revocable, meaning that you can cancel or change it at any time during your life for any reason. You name yourself as the trustee (or potentially co-trustee when spouses are involved) and can control which assets live within and outside of the trust. If you become unable to make decisions on your behalf, the successor trustee steps in to handle financial and business decisions as it’s all clearly spelled out.
What Kinds of Taxes Are Possible with a Revocable Living Trust?
Oftentimes, people think that adding high-value assets into a revocable living trust will shelter them from extraneous taxes, but that’s simply not the case. There are no income-tax savings relative to the earnings of the trust and you are taxed on all the income (on your personal return if you’re the named trustee). This occurs because you have total control over the trust and can revoke it any time you want.
Additionally, assets in the trust are considered part of your estate when it comes to determining federal estate tax. They’re generally subject to state death taxes as well (although Mississippi does not have one). The federal estate tax exemption for 2020 is $11.58 million for individuals and $23.4 million for a married couple.
A living trust can be drafted to include the same tax-saving provisions that also occur through a will.
What About Irrevocable Living Trusts?
If you are the grantor of your living trust, you’re required to report income from the trust’s assets on your personal tax return in the same way you did prior to transferring the assets into your trust. If another party is the trustee, the grantor is not responsible for income tax generated by assets in the trust. Instead, there are other tax considerations.
Living trusts can get complicated very quickly, especially if there are significant assets of value that need to be protected. Clients throughout Mississippi trust The Law Offices of Rusty Williard with their needs and the firm is here to help you as well. Call (601) 824-9797 to learn more.