Inheriting an estate can be an emotional time for your loved ones and you want to do everything you can to make the process easy and efficient for them – but how do you know what you actually need? Your neighbor says you need a trust to avoid taxes; social media tells you that you need to put your children on the deed to your home; there are countless misconceptions such as these circulating about estate planning. This blog post will debunk common myths and explain how a Revocable Living Trust can benefit you and your family.
Myth #1: You need a trust to avoid estate taxes.
For the average North Carolinian, this statement is simply untrue.
The State of North Carolina does not currently levy an inheritance tax or an estate tax. Which means on the state level, you can pass unlimited funds to your beneficiaries upon your death with no state tax consequences. On the federal level, there is no inheritance tax, and with the threshold for the federal estate tax kicking in at $13.61 Million for an individual, the average North Carolinian is not impacted by the federal estate tax. In addition, married couples can combine their estate tax exemptions so that between their estates they can pass $27.22 Million before any federal estate tax is levied. The IRS estate tax filing threshold table can be found here.
If in reading the paragraph above you find that you are in the small group who have concerns about paying the federal estate tax, let us explore how different trusts could help.
- Revocable Living Trusts: As these trusts operate under your Social Security Number, they provide no benefit in avoiding the federal estate tax. Assets held in a revocable living trust are still considered part of your estate for estate tax.
- Irrevocable Trusts: Irrevocable Trusts can take many forms and can provide significant tax advantages upon your death. You can gift assets to your irrevocable trust, or purchase assets through your irrevocable trust, to keep those assets (and any future income they may earn) out of your taxable estate at death. Irrevocable Trusts operate as their own taxable entity and will have their own EIN. The downside to this method is that irrevocable trusts are difficult to unwind or amend, and generally you cannot be the trustee of your own irrevocable trust so you must give up control of your assets.
Myth #2: I must put my house in a trust.
Some are led to believe that if they do not put their home in a trust, it will get tied up in court for years. Unless your home needs to be sold to pay creditors upon your death, real property passes outside of probate in North Carolina. You do not need to put your house in a trust, nor put your children on the deed to your home to achieve this result. Immediately upon your passing, either your legal heirs, if you have no will, or the beneficiaries named in your will, become the legal owners. This is true even if you have a mortgage on your home. This means that they can sell the home, move into the home, rent the home, etc. effectively from the day you die.
While the Courts will not delay the transfer of title to your home, it is important that your beneficiaries reach out to a qualified estate attorney before selling the home if it is within two years of your passing to ensure the proper parties sign the deed and the proper assurances to any creditors are made.
Myth #3: Trusts are for the wealthy.
Here are reasons why you may still need a Revocable Living Trust:
- Out of State Property – If you own property outside the state of North Carolina, it may become subject to probate in that state upon your passing. North Carolina is unique in its probate free transfer of real property, and you should not assume that the same will occur in other states. Retitling your out of state property into your Revocable Living Trust will avoid the need to open a probate estate in that state.
- Difficult to Value Assets – If you own a difficult to value asset such as a business, putting that business into a revocable living trust will avoid costly court mandated appraisals and reporting and will allow your business to continue more.
- Incapacity Planning – Revocable Living Trusts can be helpful for incapacity planning as your successor trustees can step in and immediately control any assets titled in the name of your trust without the need for any establishment of a conservatorship or guardianship over you or your assets.
- Privacy – Revocable Living Trusts are generally “secret” documents – they will not be entered into a public record like your Will would be upon your death. Even in retitling assets into the trust during your lifetime, banks and institutions only require review of certain provisions, keeping the dispositive provisions of your trust confidential.
- Ease – This benefit is a bit conditional, as your revocable living trust is only effective in avoiding probate for assets retitled into the name of your trust during your lifetime (or passing to your trust by beneficiary designation). However, anything that is titled in the name of your revocable living trust will pass to your beneficiaries without court intervention or delay.
A Revocable Living Trust can be a valuable tool, whether you have a complex financial situation or simply want to ensure a smooth transfer of assets to your loved ones. Do not let misconceptions about trusts prevent you from creating a solid estate plan.
Ready to discuss your options and explore how a North Carolina estate plan can benefit you? Contact Danielle Fuhrman at Manning Fulton to schedule a consultation. The firm will work closely with you to understand your goals and develop a personalized plan that provides peace of mind for you and your family.
