3 Tax Advantages of Placing Your Assets in an Irrevocable Trust

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1. Estate Tax Reduction

Assets in an irrevocable trust are removed from your ownership and therefore from your taxable estate. This means their value won't count towards federal or state estate tax when you pass. For affluent families, this could lead to at least a 40% tax advantage on millions of dollars. The rich get richer!

2. Grantor Trust Benefits

Set up as a grantor trust, beneficiaries can also receive a step-up in basis for appreciated assets like stocks and real estate. This means when you pass, they can sell those assets at current market value without paying taxes on any realized capital gains. However, note that if it's a non-grantor trust, this benefit does not apply. You might have been better off just having the assets in a taxable brokerage account without a trust.

3. Flexible Taxation of Income

In case that wasn't confusing enough, income generated by assets within the trust can be taxed to the trust, the grantor, or the beneficiary, depending on how it's written. Some advanced strategies allow income to be shifted to beneficiaries who are in lower tax brackets. That's the last thing that I will pretend to know how to do, so consult a tax attorney near you. Knowing is half the battle! And if anyone can tell me what the other half was supposed to be, I never picked up on that. Plus, I wasn't a very sharp kid—I swallowed a lot of sugar as a kid.

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