Many trusts have been set up by people over the years to minimize or eliminate estate taxes. In recent years, estate tax laws have become more favorable, and estate taxes are not an issue for most people. If you have a trust but estate taxes are not an issue for you, should you keep your trust? As with just about every legal answer, it depends.
Changing estate tax laws
In 2012, the Ohio Legislature abolished estate taxes. Prior to that, trusts were a near necessity for people whose net worth was around $500,000 or more. At around the same time, Congress increased the federal estate tax to $5 million with an annual rate increase. Congress again increased the federal estate tax exemption to about $11 million per person in the last tax reform bill, but that increase is only temporary.
In 2025, the federal estate tax exemption will go back to the original $5 million ($5.5 million with increase). As this brief history of estate taxes shows, fewer people pay estate taxes today than ever before.
Today, if your net worth is less than $11 million ($22 million for married couples), there will be no estate tax at your death.
If you will not be paying estate taxes, is there any reason to keep your trust? Yes, there are several reasons. First, trusts allow for more complexity in the estate or succession planning. Complex provisions like long-term leases, rights of first refusal, shared appreciation agreements, installment purchases and/or establishing landholding LLCs are better done through trusts. A trust is a much better mechanism for handling complex plans than a will, which requires probate. Probate works well for people with simple plans, but many farmers do not have simple plans.
Another reason to not terminate your trust is that the state Legislature or Congress can change the estate tax laws. While estate tax exemptions today may be higher than your net worth, a change in the law could cause you to quickly have estate tax liability. You would not want to pay for a new trust to address a new estate tax liability when you terminated a perfectly good trust a few years ago.
Lastly, trusts help to avoid probate. We can avoid probate on many assets through titling, but untitled assets will go through probate without a trust. These assets include machinery, livestock, grain and crops. Because these assets do not have a title, we cannot make them transfer on death, or payable on death, to a beneficiary. By using a trust, these assets can avoid probate and the potential extra costs, paperwork and delays that probate can sometimes create.
For some people, the best plan is to keep your trust, but not use your trust. If your plan is simple and estate taxes are not currently an issue, you can title most of your assets directly to a beneficiary. You can have a will to take care of the few, if any, non-titled assets you may own. You can keep your trust, but not have anything in it, or have any assets pass through it at death. It is basically an empty container that you may never need; but if you do, it is available, and you do not need to pay for a new trust.
Trusts are valuable estate planning tools, even if estate taxes are not an issue. Most farmers will find benefits to trusts by way of allowing for more complex plans and avoiding probate on machinery, crops and livestock. Even for those people who do not need trusts currently, it may be advantageous to keep the trust just in case. Be sure to discuss these issues with your attorney before deciding to terminate your trust.
Contact Moore, an attorney with Wright & Moore Law Co. LPA, at 740-990-0751 or firstname.lastname@example.org.