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Choice of trustee The choice of trustee becomes important. The trustee must be sophisticated enough to manage trust assets, while being attentive to your wishes and the needs of beneficiaries. With smaller amounts of money, it is difficult to find a bank or trust company to serve as trustee. A responsible family member can be used and siblings are sometimes made trustees for each other. Trustee has discretion to pay out when needed; pays for college  As noted, such trusts could be set up for children or grandchildren who are receiving gifts or bequests. The trust instruments might provide that income and principal would be made available to the beneficiary as the trustee deemed advisable. For children who reach college age, the trustee could be directed to pay college expenses. Then, as the children get older, the trustee can continue to pay income and discretionary principal, prior to making disbursements of the principal in stages, say, when the children reach the ages of 30, 35 and 40.
High trust tax brackets means investing for the "long term" There used to be very low tax brackets for trusts, which were attractive. These have been raised some years ago and are no longer favorable. The federal tax income rate on income over $9,350 is 38.6%! Thus, investments in trusts, when a lot of current income is not needed, should be of the capital appreciating variety. Then, gains can be taken as capital gains, which can be 20%. Retain low "tax basis" assets when gifting When gifts are made, assets that one would want to give away are the ones that have appreciated in value the least. As noted, until 2010 appreciated property will receive a "step-up" in basis on a decedent's death. That is to say that the tax basis, or acquisition value of property to someone who has inherited it, is not your original acquisition cost. Rather it is the fair market value at the time of death. Thus, it would be beneficial in setting up a client's estate plan, to keep properties in which he or she has the lowest tax basis. This means retaining in your name, property, such as stocks, which have gone up a lot, and which you do not need to sell for the foreseeable future. Let's face it, men usually die first. Therefore, it is often well to load the heavily depreciated items into the man's name. This is because the wife is able to inherit low basis assets from the husband and then sell them without having to pay capital gains taxes. However, if there were something in a clients' health histories that might lead one to think otherwise, then the wife should hold such assets. Use low tax basis property to make charitable gifts Gifts to qualified charities are deductible from your taxable estate. A commonly overlooked technique for making charitable gifts is using appreciated property. Instead of making cash gifts to charity, you should consider donating stocks or bonds or other items in which you have paper profits. In other words, instead of selling stock, paying the capital gains taxes and then giving the net amount to the charity, consider simply giving the appreciated stock. You do not pay a capital gains tax on the gift, and you do get to deduct the fair market value of the item given away. (The charity, itself, pays no income tax.) Back
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