calculation of tax savings

Can a trust Help You Save on Taxes?

Many people come to us curious (or confused) about trusts and taxes. So,  this article will focus on clarifying some of the questions you may have on this topic.

Different Types of Trusts

There are two major types of trusts, and each has different tax consequences.

First, there are revocable trusts, which are by far more commonly used. They have no tax consequences during our lifetime.  A revocable trust has your social security number as it’s tax identifier and is not a separate entity from you for tax purposes. It is a separate entity from you for purposes of probate, meaning if you become incapacitated, your Trustee can take over without a court order, keeping your family out of court and family disputes. But, until your death, it is treated as invisible from a tax perspective. At the time of your death or incapacity, if your revocable trust provides for the creation of irrevocable trusts, then the tax implications will shift.

Second, there is an irrevocable trust, which is either created during life, at death through a revocable living trust, or through a will that creates a trust. Generally, it pays income taxes on income earned by the trust, as if it’s a separate tax-paying entity.

Trust income is taxed at the highest tax bracket applicable to individuals as soon as there is over $12,950 worth of income, so in some cases, a trust can be drafted to provide that the tax consequences pass through to the beneficiary and are taxed at his or her rates. We will often do this when creating a Lifetime Asset Protection Trust for a beneficiary so that the trust can provide the benefits of credit protection from lawsuits, divorce, or even bankruptcy, but not have the negative tax consequence of the higher tax rates on trust income.

Of course, if you have a trust, and you want us to review it for the income tax consequences to your loved ones after your death, please contact us.

Trusts and taxes

Now, the topic of estate taxes. Currently, if you die with assets totaling over $11.58M, then your estate will be subject to estate tax on all amounts over that $11.58M at the rate of 40%. Yes, 40% will go to the government. You can mitigate these taxes, defer them, or, in limited cases, even eliminate them, by using various planning methods, most of which are fairly complex, but worth it if you can save your family the 40% estate tax.

If you are trying to figure out whether an irrevocable trust, a revocable trust, or even a Lifetime Asset Protection Trust is best suited for you, as your Personal Family Lawyer®, we can help you choose the best course of action that suits you and your family’s needs.

Contact Lexern Law Group Today

 

Disclaimer: This article is intended to serve as a general summary of the issues outlined therein. While this article may include general guidance, it is not intended as, nor is a substitute for, qualified legal advice. Your review or receipt of this article by Lexern Law Offices, Ltd. (the “LLG”) or any of its attorneys does not create an attorney-client relationship between you and the LLG. The opinions expressed in this article are those of the authors of the article and does not reflect the opinion of the LLG.

You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.

estate planning

A Tragic Oversight: Kobe Bryant’s Youngest Daughter Mistakenly
Left Out of Family Trust

In January, the tragic deaths of NBA legend Kobe Bryant (Kobe) and his 13-year-old daughter, Brianna, shined a new light on the vital need for an updated estate plan. At the time, little was known about the planning strategies Kobe put in place to protect and preserve his estimated $600 million estate for his wife, Vanessa, and his three surviving daughters, Natalia, 17, Bianka, 3, and Capri, 7 months.

Since then, court filings made by Vanessa have shed light on both the successes and failures of Kobe’s estate planning efforts. On the positive side, Kobe created an extensive estate plan, which included the Kobe Bryant Trust that protected his assets, reduced estate-tax liabilities, and passed his wealth onto his family.

While the contents of the trust remain private, as they should, the court documents do provide a summary of the trust’s terms. Upon Kobe’s death, the trust was set up to allow Vanessa and her daughters to draw from the principal and income of the trust’s assets during Vanessa’s lifetime, with the remainder going to their children upon Vanessa’s death.

However, the trust lists Vanessa and his eldest daughters Natalia, Brianna (who died in the helicopter crash with her father), and Bianka as beneficiaries. His youngest daughter, however, Capri, was not included in the document. Reportedly, Kobe and his estate planning attorneys simply never got around to adding Capri to the trust before his untimely death at age 41.

A tragic Estate PLan oversight

Seeking to fix this mistake, Vanessa Bryant and Robert Pelinka Jr., Kobe’s best friend, were named Co-Trustees. They petitioned the Los Angeles probate court to modify the trust by adding Capri as a beneficiary with equal rights as her sisters. Unless the court agrees with the petition, Capri will be ineligible to inherit her share of the family estate held in the trust, which could be worth hundreds of millions of dollars.

According to the petition, the trust was created in 2003 after the birth of the couple’s first child, Natalia, and its intent was to provide for the support of Vanessa and all of the couple’s children following Kobe’s death. As evidence of this intent, the petition points out the fact that Kobe amended the trust to add daughters Brianna and Bianka after they were born.

Although it’s likely that the court will agree to the trust’s modification to include Capri, the fact remains that Kobe and his legal team made a major error by not updating his plan immediately following her birth. This mistake has undoubtedly cost Vanessa not only hefty sums of money, but it also eliminated one of the trust’s biggest benefits by failing to keep Kobe’s surviving family members out of court.  It also exposed the estate’s details to the public, which should have been private.

And, the most unfortunate part of the whole situation is just how easily this oversight could have been avoided.

Stay up to date

It’s a popular myth that estate planning is simply a matter of creating the proper documents, filing those documents away for safekeeping, and only revisiting them upon the creator’s death. This is far from the truth.

Indeed, the oversight by Kobe’s lawyers illustrates why most plans—even those created by multi-millionaires and their lawyers—fail to keep families out of court. And, though Kobe’s family can easily absorb these costs, your family most likely won’t be able to without significant impact.

As Kobe’s case shows, even the most well-intentioned plan can prove ineffective if it’s not regularly updated. Estate planning is not a one-and-done type of deal—your plan must continuously evolve to keep pace with the changes in your family structure, the legal landscape, your assets, and your life goals.

And, unfortunately, this type of estate plan oversight happens all the time. In fact, outside of not creating an estate plan at all, one of the most common estate planning mistakes we encounter is when we’re called by the loved ones of a person whose estate plan wasn’t updated and no longer works. Yet, by the time they contact us, it is already too late.

We recommend you review your plan annually to make sure that it’s up to date and immediately modify your plan following events like births, deaths, divorce, and inheritances.

We have built-in systems and processes to ensure your plan is always up to date, so you won’t need to worry about forgetting anything.

Mapping your assets

You should also create—and regularly update—an inventory of all your assets. Which includes digital property like cryptocurrency, photos, videos, and social media accounts. By doing this, your family will know what you have and how to find it if something happens to you, and none of your assets will end up in your state’s Department of Unclaimed Property.

We will not only help you create a comprehensive asset inventory, we’ll make sure it stays regularly updated throughout your lifetime. And with the COVID-19 pandemic still raging, creating such an inventory is something you should take care of immediately.

As Kobe’s sad story illustrates, death and illness can strike at any time, and even the most extensive estate plan can fail without the proper systems put in place. To ensure your plan works exactly as intended for the ones you love most,  contact us, as your Personal Family Lawyer®, today to review and update your current plan, or create one if you have yet to do so.

 

To contact us please click here.


Disclaimer: This article is intended to serve as a general summary of the issues outlined therein. While this article may include general guidance, it is not intended as, nor is a substitute for, qualified legal advice. Your review or receipt of this article by Lexern Law Offices, Ltd. (the “LLG”) or any of its attorneys does not create an attorney-client relationship between you and the LLG. The opinions expressed in this article are those of the authors of the article and does not reflect the opinion of the LLG.