As tax and trust laws evolve, it is possible that a trust created several years ago is no longer as tax-efficient as it could be. For instance, a trust now pays the top federal income tax rate of 39.6 percent if it has more than $12,300 in adjusted gross income in a given year. In comparison, a married couple would only pay that tax rate if they had more than $464,850 in AGI in a year.
Therefore, it may be a good idea to revise the terms and nature of the trust so that the grantor or beneficiary of the trust is taxed rather than the trust itself. In addition if a trust was created to lower estate taxes, increases to the federal estate tax exemption may mean that the trust is no longer need to accomplish that goal. In some cases, a changing economic landscape in the past several years has rendered trust language obsolete or ineffective.
As a result of the 2008 recession, individuals and families may have seen their net worth reduced dramatically or the value of assets go down substantially. For those who wish to change a mandate in a current trust, it may be worthwhile to review a state’s decanting laws to determine whether or not it is possible to rewrite a trust. Even if a trust is considered irrevocable, it is becoming easier to rewrite them if they are considered unworkable.
While trusts may be effective estate planning tools, any number of events could make them less effective as time moves forward. An estate planning attorney can often be of assistance in reviewing a client’s trusts and will in order to ensure that the documents reflect the client’s current family and financial circumstances.