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Can you avoid estate taxes with trusts?

On Behalf of | Jul 4, 2023 | Trusts |

One of the biggest headaches of receiving an inheritance in Maryland is the taxes you will have to pay. Estate tax kicks in when you come into a high amount of wealth or other assets from a benefactor who is now deceased. If they didn’t plan their estate carefully, the taxes that accrue can have a damaging effect on its total worth.

A residence trust can shield your property

There are certain types of trusts that can help you reduce the amount of estate taxes that you are required to pay. For example, you can use a residence trust to shield certain types of property, such as your home. You can list yourself and your heirs as the beneficiaries. This enables you to keep living in the house. They can also do so after you die.

This arrangement stipulates that the trust owns the property. As a result, the home is not listed as an asset that is subject to tax. This is because you do not technically own the property. It doesn’t contribute to the value of your estate.

Intentionally defective grantor trusts can protect assets

A common way of lowering estate taxes will be to establish an intentionally defective grantor trust. This arrangement will form an irrevocable trust into which you place the assets you desire to shield from estate taxes. You will still be responsible for paying taxes on the assets held by the trust.

Placing your assets into a trust allows them to grow while minimizing taxes. This will allow you to enjoy a much higher level of asset reception at the time that your benefactor passes. It also enables you to plan a better estate for your own heirs.