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Using a trust to reduce or avoid estate taxes

On Behalf of | Apr 4, 2024 | Taxes |

Estate taxes can diminish the value of an estate when someone dies. As a result, they have the potential to leave loved ones with less than anticipated inheritance. However, utilizing a trust can be an effective strategy to avoid or reduce estate taxes in Connecticut.

Trusts offer flexibility and control over the distribution of assets. This helps people protect their wealth and provide for their heirs according to their wishes.

Irrevocable trusts for estate planning

Irrevocable trusts are a common tool used in estate tax planning to remove assets from an individual’s taxable estate. Once assets transfer into an irrevocable trust, they are no longer part of the estate for tax purposes. This can result in significant estate tax savings. This is especially beneficial for people with large estates. Irrevocable trusts also offer asset protection benefits, shielding assets from creditors and potential legal challenges.

Generation-skipping trusts for tax efficiency

Another strategy for reducing estate taxes is to establish a generation-skipping trust. These trusts transfer assets to grandchildren or other beneficiaries at least two generations below the grantor. By skipping a generation, GSTs can potentially avoid or minimize estate taxes people would otherwise incur if the assets passed to the grantor’s children first. This can benefit those with substantial wealth who wish to provide for future generations while minimizing tax liabilities.

Ongoing management and administration of trusts ensure their effectiveness in achieving the desired objectives, including regular review and potential updates as circumstances change. This proactive approach helps to maintain the trust’s relevance and effectiveness over time. In doing so, it safeguards the interests of beneficiaries and preserves the grantor’s legacy.