Save Tax Dollars On The Money You Leave To Loved Ones.
If you’d like to give money to your children, but you do not want them to use the money right away, then you should probably set up a trust fund. One of the disadvantages of trust funds, however, is that in a lot of cases, they are not immediately exempt from taxes. For this reason, you should be careful about the type of trust fund that you end up getting, in addition to watching out for the other problems that can come up if you’re not careful about the type of trust you get. One good option, if you’re trying to put away money in order to take care of your family in the future, is a Crummy trust.
What is a Crummy trust? A Crummy trust is a type of trust fund that will allow you to get around a lot of the estate taxes that might come up if you just have a regular trust fund. Therefore, if you’re worried about the amount of money that you’d have to spend on your estate taxes after death, then you should look into this type of trust.
There are a few disadvantages to the Crummy trust that you should definitely consider before you decide to go with this type of a trust fund. First of all, the Crummy trust will not allow you to change the trust once it is in place. Therefore, you should make sure that you are leaving the money to somebody you “trust”. In a way, this trust fund is like a future gift that you are, in effect, giving now. However, in order to make sure that you don’t have to pay any taxes on the money (since future gifts are also taxed, similar to the estate tax) then you have to make sure that the Crummy provision is applied.
Essentially, this will make it so that legally, the money in the trust fund has already been given to the beneficiary, even if they will not be allowed to use the money until after your death. As you can probably imagine, this is a very complicated undertaking, so you should definitely talk to a tax lawyer before you make your final decision.