Warning

Info

Warning

Info

Warning

Info

LSDefine

Simple English definitions for legal terms

exemption trust

Read a random definition: prime maker

A quick definition of exemption trust:

An exemption trust is a way for wealthy married couples to reduce the amount of estate taxes they have to pay when they pass away. When one spouse dies, their portion of the couple's property is put into a trust that will pass to their children or other beneficiaries. The surviving spouse can still receive income from the trust, but they can't overly benefit from it. The surviving spouse's portion of the property is put into another trust or left to their estate. When the surviving spouse dies, the exemption trust passes to its beneficiaries, and the assets of the surviving spouse will avoid estate taxes up to their own exemption amount. This method may save on estate taxes, but it can be expensive and complicated, and it may not be beneficial for everyone.

A more thorough explanation:

An exemption trust is a legal tool used by wealthy married individuals to maximize their estate tax exemptions. It involves creating a trust or two separate trusts after one spouse passes away. The deceased spouse's portion of the couple's property, up to the applicable exclusion amount, is put into a trust (the exemption trust). This trust is irrevocable and will pass to beneficiaries other than the surviving spouse, usually their children. The surviving spouse must follow the trust's plan without overly benefiting from its operation, but this trust often passes income to the surviving spouse to live on for the rest of their life.

For example, if a couple has $20 million in assets and one spouse passes away, $12.06 million of the assets would be put into the exemption trust, and the remaining $7.94 million would be put into another trust or left to the estate of the surviving spouse. When the surviving spouse passes, the exemption trust passes to its beneficiaries, and the assets of the surviving spouse, whether or not in a trust, will avoid estate taxes up to their own exemption amount.

This method of dividing assets may save on estate taxes, but only in limited circumstances. Before the Tax Cuts and Jobs Act, many individuals used this to take full advantage of their estate tax exclusions which were less than $6 million. After the Tax Cuts and Jobs Act, this tool can only be beneficial in limited circumstances because the exclusion now is over $11 million which applies to few individuals. However, many states have no gift taxes or have estate taxes which are not portable, which might make exemption trusts still beneficial to wealthy couples.

It is important to seek advice from estate experts when using exemption trusts. The Internal Revenue Service (IRS) requires specific wording in the creation of these trusts and limits on the surviving spouse's use of the exemption trust. Also, given the high fees involved in planning, managing, and paying for attorney fees for exemption trusts, often an exemption trust may be more costly than the estate tax itself, and sometimes, the estate would incur less taxes outside of the exemption trust by incurring a stepped-up tax basis for property.

exemption | exhaustion

Warning

Info

General

General chat about the legal profession.
main_chatroom
👍 Chat vibe: 0 👎
Help us make LSD better!
Tell us what's important to you
THATS SO FUNNY
i cant i would go crazy
JumpySubsequentDolphin
20:50
i need to know who decided to do that.
JumpySubsequentDolphin
20:50
omg im on a plane weeeee
the devil
youre on a plane??? LSD made the mile high club??
20:50
yo splitterus are you in school already
20:50
it says ur c/o 2027
JumpySubsequentDolphin
20:51
@SplitterusClitterus: HAHAH yes
ur user is hilarioussss and no i just graduated this may and am now applying ---also im out of messages so ill take a lil
20:52
roger dat. see u in heck
im back, r u applying this cycle too
JumpySubsequentDolphin
21:32
this child fell asleep on me
JumpySubsequentDolphin
21:32
im so uncomfortable
just push him off the entire seat
JumpySubsequentDolphin
21:34
LMAOOOO
JumpySubsequentDolphin
21:35
no he’s literally like 8 and he fully just put his head on my bicep and slept
JumpySubsequentDolphin
21:35
he has since moved
22:12
@SplitterusClitterus: me yesterday
gulc baby pls text me back... i miss you ...... :(
22:23
i just went into a discord vc and yelled "YALL I JUST GOT INTO J.M. SCHOOL OF LAW"
22:24
people were getting excited :sob:
22:25
then someone was like "what does jm stand for" and i was like .. well
AHHAHAHAHAHAHHAHAHAHAHAHAH
@JumpySubsequentDolphin: wait this is so cute, also where r u going
JOE MBIDEN
JumpySubsequentDolphin
22:39
@splitty Oregon!
oh yay for what thats so random
JumpySubsequentDolphin
22:45
haha my brother and sister in law live there
so cutie oregon is beatiful
LSD+ is ad-free, with DMs, discounts, case briefs & more.