The key to the taxability of an inheritance trust fund is in the estate tax exemption the IRS grants each taxpayer. Under the Tax Cuts and Jobs Act, you’re now allowed up to $11.18 million in tax-exempt gifts to heirs. For a couple, this means you can shield a $22.36 million estate.
What is an estate trust fund?
A trust fund is an estate planning tool that establishes a legal entity to hold property or assets for a person or organization. Trust funds can hold a variety of assets, such as money, real property, stocks and bonds, a business, or a combination of many different types of properties or assets.
How are a trust and an estate taxed?
Both trusts and estates are taxed on the income they generate. Trusts often have money or property that’s used as an investment to earn revenue. This revenue becomes the trust’s income as it’s earned. The initial settlement on the trust is not income for tax purposes. Estates can continue to earn money after a person has died.
Can a trust fund be used for estate planning?
But you don’t have to be rich to make a trust fund a part of your financial toolkit. A trust fund can be a useful component of your estate planning, (in addition to writing your last will and testament and picking your children’s guardians ). That’s especially true if you want to help your money get to your kids without a hitch when you pass away.
Can a trust be set up to avoid inheritance tax?
At least one type of trust is set up to avoid and alleviate these taxes. The estate pays the estate tax, and the beneficiary pays the inheritance tax, although an estate can be set up to pay that cost, too, on behalf of the beneficiary.
Who are the beneficiaries of a trust fund?
Depending on how the trust is set up, beneficiaries often end up inheriting the trust’s assets, according to some trigger like age—for instance, inheriting money when the person turns 21. The person or entity you want to oversee the money and fulfill the various responsibilities is the trustee.
