One of the biggest mistakes parents make when setting up a trust fund is choosing the wrong trustee to oversee and manage the trust. This crucial decision can open the door to potential theft, mismanagement of assets, and family conflict that derails your child's financial future.
If you want to access your trust fund early and access your money, you will need the co-operation of the trustees, and you'll need to know the exact terms of the trust. It's likely that if you're trying to access a trust set up by a family member, it's a discretionary trust backed by a letter of wishes.
The stepped-up basis loophole allows someone to pass down assets without triggering a tax event, which can save estates considerable money.
Trusts offer amazing benefits, but they also come with potential downsides like loss of control, limited access to assets, costs, and recordkeeping difficulties.
Parents and other family members who want to pass on assets during their lifetimes may be tempted to gift the assets. Although setting up an irrevocable trust lacks the simplicity of giving a gift, it may be a better way to preserve assets for the future.
While some may hold millions of dollars, based on data from the Federal Reserve, the median size of a trust fund is around $285,000. That's certainly not “set for life” money, but it can play a large role in helping families of all means transfer and protect wealth.
If you leave a gift to a qualifying charity in your will, whether it's money, property or another asset, it will be exempt from Inheritance Tax. This is one way of reducing the size of your estate and lowering the amount of IHT owed when you die.
Examples of Assets That Do NOT Step-Up in Basis
Individual retirement accounts, including IRAs and Roth IRAs. 401(k), 403(b), 457 employer-sponsored retirement plans and pensions. Real estate that was gifted prior to inheritance. Tax-deferred annuities.
The rule is a tax exemption that lets you use a trust to transfer appreciated assets to the trust's beneficiaries without paying the capital gains tax. Your “basis” in an asset is the price you paid for the asset. A “step-up” in basis is when the IRS lets you adjust the basis of the asset to its current value.
Ultimately, trustees can only withdraw money from a trust account for specific expenses within certain limitations. Their duties require them to comply with the grantor's wishes. If they breach their fiduciary duties, they will be removed as the trustee and face a surcharge for compensatory damages.
The grantor can set up the trust so the money is distributed directly to the beneficiaries free and clear of limitations. The trustee can transfer real estate to the beneficiary by having a new deed written up or selling the property and giving them the money, writing them a check or giving them cash.
How do I legally find out if I have a trust fund in my name? You can start by searching probate court records, contacting an estate attorney, or using online databases. Moreover, investigating any potential leads from family records or discussions might uncover the existence of a trust.
There are a variety of assets that you cannot or should not place in a living trust. These include: Retirement accounts. Accounts such as a 401(k), IRA, 403(b) and certain qualified annuities should not be transferred into your living trust.
Key aspects of trust fund syndrome include: Lack of Motivation: Individuals with trust fund syndrome may lack the drive to pursue education, careers, or personal goals because they do not need to work for financial stability.
Trusts are an excellent estate planning tool for Californians as they provide asset protection. Although someone generally can't bring a lawsuit against a trust, filing a claim against the trustee can occur.
Any appreciation in the hands of the inheritor is taxable when sold. However, if the executor of a person's estate files an estate tax return, they may be able to elect to use an alternate valuation date of 6 months after the date of death to value the estate.
The straightforward answer is no, and there is no specific time limit on selling an inherited property. However, certain factors will influence the timeline of the sale process. Understanding these nuances is key to ensuring a smooth and compliant sale.
Gift tax limit 2024
The gift tax limit, also known as the gift tax exclusion, is $18,000 for 2024. This amount is the maximum you can give a single person without having to report it to the IRS. For married couples, the limit is $18,000 each, for a total of $36,000.
The so-called “normal expenditure out of income” exemption lets savers give away unlimited sums of money without paying inheritance tax. In order to qualify, the gifts must come from income and form part of a regular pattern.
Many people worry about the estate tax affecting the inheritance they pass along to their children, but it's not a reality most people will face. In 2025, the first $13,990,000 of an estate is exempt from federal estate taxes, up from $13,610,000 in 2024. Estate taxes are based on the size of the estate.
Inheritance checks are generally not reported to the IRS unless they involve cash or cash equivalents exceeding $10,000. Banks and financial institutions are required to report such transactions using Form 8300. Most inheritances are paid by regular check, wire transfer, or other means that don't qualify for reporting.
DISADVANTAGES OF A TRUST
Most importantly, a trust will cost more than a last will at the initial stage of planning and you have to provide more information up front. Furthermore, a trust contains more complicated documents than a last will and states that your assets must be assigned to the trust.
A distribution in cash calls for the trustee to liquidate the assets in the trust and distribute the resulting cash to beneficiaries. A distribution in kind calls for the trustee to distribute assets to beneficiaries without selling the assets.
Many advisors and attorneys recommend a $100K minimum net worth for a living trust.