Contact Matthai Capital Management Matthai Capital Download Our Brochure
Matthai Capital Management HNW Clients Matthai Capital Management Women Clients Matthai Capital Management Family Offices Clients

Establishing Trusts

The American Tax Payer Relief Act of 2012 permanently allowed the lifetime exclusion for estate gift and generation-skipping tax purposes. While this was a terrific advantage it did not address the many reasons people traditionally use trusts.

1. To minimize estate and gift tax liability

  • With the estate exemption now at $5.25 million per person establishing a trust can help minimize estate transfer taxes as well (Marital By-Pass Trust).
  • A trust may be useful when planning for an eventual transfer and distribution of a retirement plan such as an IRA or 401k. By structuring a trust as a beneficiary of a retirement plan you may be able to minimize the impact of individual income taxes on planned distributions, as well as plan for the ongoing management and control of these assets once you pass away (Trusteed IRA).
  • If you have assets or business interests that are currently below the federal estate tax exemption limit a trust can enable you to effectively freeze these valuations. By transferring assets to a trust, you may be able to shelter any resulting growth from future federal and state taxes, depending on the trustee and state in which you domicile the trust.

2. Protecting assets

  • If you are in a high risk profession such as a doctor, transferring assets to a trust can help shield the assets from malpractice suits.
  • Also, irrevocable trusts are highly effective against claims of liability, lawsuits, creditors and divorce settlements. For example, should you or someone you love ever become involved in a car accident, trust assets cannot be accessed as part of a liability lawsuit. The same applies if someone sues you for an injury incurred while on your property.
  • A trust may also be a less contentious alternative to a prenuptial agreement. Assets owned prior to marriage can be transferred to a trust naming you as both trustee and beneficiary. This would protect those assets from a settlement should the marriage end in a dissolution (Asset Protection Trust).

3. Planning for disability

  • Given today’s longer life spans you may want to consider developing a plan for disabilities you may experience in later years, such as infirmities that can impair your capacity to manage financial affairs.
  • A Special Needs Trust, also known as a supplemental needs trust, is designed to preserve eligibility for government benefit programs for a disabled beneficiary such as a child. Without such a trust, ownership of assets totaling more than $2,000 would disqualify the disabled beneficiary from receiving most federal needs-based assistance such as Medicaid and Social Security income (Special Needs Trust).

4. Maintain control

  • One of the key reasons for establishing a trust as part of your estate plan is to retain control of your assets. This is particularly true in light of any family strife that could ensue over who gets what assets now and/or when you pass away. One such trust is the Marital By-Pass Trust. This trust, which becomes irrevocable upon a grantor’s passing, maps out your inheritance plan, cannot be changed by a surviving spouse, and eliminates the possibility of any undue influence from your children, subsequent spouses, or external parties.
  • Another key consideration in estate planning is the prospect of leaving all or a portion of your assets to a young child or even a young adult child, not ready for the responsibility. This is a circumstance in which a trust, administered by an appointed trustee, can be particularly advantageous to ensure your assets are not mismanaged or lost precipitously.

5. Maximize giving (philanthropy)

  • Charitable Remainder Trusts are very unique and effective as they allow for three main benefits: Tax deduction, no capital gains to the grantor, and income to the beneficiary. They can be funded effectively with concentrated stock positions, with a low cost basis.
  • Donor-Advised Funds can be used in place of establishing a private foundation, and are considerably less expensive to maintain. The donor receives a tax deduction in its entirety for the year it is given, and no capital gains for the asset donated. It also allows for contributions by the donor to their personal charitable causes at their convenience. In addition, they can be funded with many kinds and varying assets such as commercial real estate, antique cars, highly-appreciated stock, etc.