Is there such a thing as a living, irrevocable trust that avoids estate taxes? For example, can an irrevocable life insurance trust be used to avoid estate taxes? Or can only testamentary trusts be used to avoid estate taxes?
Yes. There are about 65 different types of gusts. A competent attorney can help you out.
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Irrevocable trusts remove assets from your estate thereby reducing the size of your taxable estate. Consulting with an estate planning attorney will assist you in proper estate planning.
One additional point: The assets you transfer to the irrevocable trust may consume a portion of your lifetime estate tax exemption (not sure about the NJ taxes). There is a unified gift/estate tax that you can use up either with gifts, your estate assets, or both. However, you are allowed to give as many people as you want to a gift of $14,000 per year without eating away your lifetime exemption.
As an aside, if you are married, you have the option of porting your remaining lifetime exemption to your spouse when you die so he/she could end up with a double exemption.
Yes, talk to an Estate Attorney in NJ.
The irrevocable trust is a valuable estate planning tool as it removes assets from the estate, so that they become non-taxable. It can have a retained life-estate so long as there are no "strings." There is such a thing as an Irrevocable Life Insurance Trust (ILIT). You can theoretically avoid both estate and income tax if done properly, so long as the total amount falls within the lifetime gift tax exclusion, currently around $5MM.
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