Including a living trust in your estate plan can be a smart move, depending on your estate details and size. This arrangement can come with distinct benefits, but it may also have tax considerations that usually vary based on state law. Reviewing these taxes before deciding to establish a living trust could be vital.
Sometimes, these tax liabilities may outweigh the trust’s advantages, making other estate planning tools more appropriate. In Colorado, living trusts are usually subject to the following taxes:
- The trust maker’s income tax during their life – Despite putting your assets in a living trust, you remain the owner, so it can remain a consideration when calculating your income tax.
- Death or estate tax – This tax type applies based on the circumstances. It might only be applicable if you pass on and leave assets worth at least $5 million. In some scenarios, a well-planned estate plan, including wills and living trusts, can help save on this type of tax.
Additionally, transfers conducted to establish a living trust may not be subject to gift taxes.
Is it beneficial for me?
A living trust can yield significant benefits, depending on your goals as the trust maker. Unlike other estate planning tools, this trust type can help give you more control over your assets before and after death. Aside from savings and other apparent benefits, it can also provide room for specific instructions concerning your estate after you pass on.
However, depending on the circumstances, a living trust can be more costly and challenging to establish than other options. Before choosing it for your estate plan, it can be helpful to seek legal counsel first. Doing so can help you determine if a living trust fits your needs or other estate planning tools are more appropriate.