It's A Matter Of Trust-Estate Issues Ignored By Millionaires

As 2011 inches to a close, the issue of establishing a trust to avoid estate tax issues, continues to be ignored by most Millionaires.  Granted, the truly horrific tax consequences have been delayed for at least another year, but Millionaires, those with at least $ 1 million of net worth will need to start planning soon.

Currently the federal estate tax exemption is set at $5 million and the estate tax rate is set for 35 percent for the 2010 and 2011 tax years.  In fact, the exemption actually increases to $5, 120,000 on January 1, 2012.  On January 1, 2013, however, the tax rate and the exemption revert back to the numbers that were in effect in 2002.  That means the exemption is $1,000,000 and the estate tax rate is 55 percent.

Currently only 31 percent of Millionaires have assets held in trust, according to recent research conducted by Millionaire Corner with Millionaires in late 2011.  Of those Millionaires who have a trust, 90 percent act as the Trustee of the trust and only 10 percent have an outside or corporate trustee.  Forty one percent use their attorney as their advisor while 27 percent use a bank trust department. 

Why do Millionaires avoid this difficult issue?  Well, the tax exemption has allowed Millionaires to ignore the issue, especially if they did not feel the would exceed the $5 million exemption amount.  Secondly, many individuals hate to lose control over their assets and do not understand that as grantor, they can retain control depending upon how the trust is structured and whether they choose to act as trustee.  Finally, confronting one's own mortality, as well as making difficult choices regarding one's family, are actions most individuals choose to avoid as long as possible.

Whether you fit within the gray zone of estate planning or have friends or family members that need to deal with this issue, now is the time to start planning.  Many attorneys and accountants will acknowledge that they don't really know what type of advice to recommend because of the uncertainty of the tax situation, but ignoring the problem could lead to larger future issues.

The fate of the estate tax is unclear.  While House Republicans will probably favor abolishing the tax, Democrats have seemed to support a $3,500,000 exemption and a 45 percent tax rate in past bills.  Congress could allow the legislation to sunset and return to the 2002 rates or they could extend the current agreement indefinitely.  They could actually come to agreement on a different strategy (doubtful).  Keep your eyes and ears ready in late 2012 as a new agreement, whatever it may be, will come into being.

And while Millionaires may have avoided establishing a trust, 89 percent have a will in place.  So while their estate planning may be incomplete, they have definitely addressed the issue.