A successful wealth transfer plan is an essential component of financial planning that can help secure your financial legacy, support your loved ones, and potentially reduce tax burdens. Here are 5 top viewer questions from our recent 3-part webinar series on estate planning, trusts, and taxes, with answers from Fidelity’s team of Advanced Planning professionals.
1. Who needs to pay estate taxes?
Estate taxes are paid from the assets of your estate before remaining assets can be distributed to your beneficiaries. The current federal estate tax laws allow for a very large lifetime estate and gift tax exemption—the amount you can give away during your life or at death without incurring federal gift or estate taxes. In addition, married couples can combine their lifetime exemptions through a process known as portability. However, it’s still important to consider your wealth transfer strategy, since future legislation could change the federal exemption amount. In addition, some states have different, often lower, lifetime exemption amounts, and several states have an inheritance tax, which may be paid by beneficiaries.
Learn more: What is the estate tax exemption?
2. If I have a will, why might I need a trust?
Wills and trusts both dictate how assets are distributed after death, but they also serve different purposes. A will, which must go through probate, appoints guardians for minor children if you have them and distributes assets at your death. A trust is a legal arrangement for the transfer of property, either during life or at death, to a trustee for the benefit of one or more beneficiaries. The trust structure can offer greater flexibility and control over the assets, privacy, and ongoing asset management for beneficiaries. Depending on the type of trust and how it is structured, it can also help reduce the amount of federal or state estate taxes due at death. An estate planning attorney can help you decide whether a trust may be appropriate for your goals.
Learn more: How trusts may fit into your estate plan
3. What is the difference between a revocable and an irrevocable trust?
A revocable trust, also known as a living trust, can be changed or even terminated at any time during the grantor’s life. An irrevocable trust, as the name implies, cannot be revoked by the grantor, and requires the grantor to permanently relinquish control of assets placed in the trust. When the grantor passes away, a revocable trust becomes irrevocable.
With a revocable trust, you can prepare for potential incapacity and facilitate the smooth transfer of property to your beneficiaries without going through probate. Irrevocable trusts are often structured to remove trust assets from the grantor’s taxable estate and help minimize exposure to estate taxes.
Learn more: Getting started with trust planning
4. How should I choose a trustee for my trust?
Trustees have many complex responsibilities, including handling any of the assets held in trust, making tax filings for the trust, and distributing the assets according to the terms of the trust. If you don’t know anyone who can administer your trust properly on their own, you may want to consider bringing in a corporate trustee such as a trust company or bank trust department. A corporate trustee can serve on its own, or in a co-trustee arrangement with a friend or family member. The kind of trust you establish may also affect who can and cannot be named as a trustee.
Learn more: Why naming the right trustee is critical
5. I would like my children to inherit the family home. Should I put it into a trust?
Many families find that funding a revocable trust with a home during life is the simplest and most flexible way to pass on a home since it allows you to keep full control of the property during your lifetime and avoid probate of the property at death. There are also many other options for passing on real estate, including joint ownership, transfer-on-death deeds (where available), and wills. Each involves trade-offs around cost, privacy, flexibility, and planning for contingencies. It’s important to work with an estate planning attorney who can explain the considerations and draft documents correctly.
Learn more: Should you consider putting your home in a trust?
More insights
To hear more from Fidelity professionals on estate planning, taxes, and trusts, listen to the replays of our webinars "Building Your Estate Plan” and "Tax and Trust Strategies for Your Estate Plan.”
And for all the latest insights from Fidelity Wealth Management, visit the Insights hub.