Estate Planning Archives - Encore Partners

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The advantages of a living trust for your estate plan

June 5, 2025/in News, Tax Tips - Individual/by Betty Kim

Lately, I’ve found myself attending more funerals than I ever expected at this stage in life — and with that comes a wave of questions from friends, clients, and family about what happens when a loved one passes. It’s emotional, complicated, and often filled with more questions than answers.

One thing that can make a big difference is having a living trust in place. It’s not just about tax savings — it’s about keeping things simple, avoiding probate, and protecting your family’s privacy. This week’s article dives into what a living trust is, how it works, and what pitfalls to avoid.

It’s not just for the ultra-wealthy, and with the estate tax exemption likely changing soon, it may be a good time to revisit your plan.

If this has been on your mind or if you’re not sure where to start, take a moment to read the article below — and let us know if we can help to navigate this with you.

That said, even if you believe you don’t need to worry about estate planning because of the current federal estate tax exemption ($13.99 million per individual or $27.98 million for married couples in 2025), it’s worth thinking again. Even with this substantial exemption, creating a living trust can offer significant benefits, especially if your goal is to avoid probate and maintain privacy.

Here are some answers to questions you may have about this estate planning tool.

What’s a living trust?

A living trust — also known as a revocable trust, grantor trust, or family trust — is a legal entity that holds ownership of your assets during your lifetime and distributes them according to your instructions after your death. Unlike a will, a living trust allows your estate to bypass probate, which is the often lengthy and public court process of settling an estate.

How does a living trust work?

You begin by creating a trust document and transferring ownership of specific assets to the trust. These may include:

Your primary residence,
Vacation properties, and
Valuable personal items like antiques.

You’ll name a trustee to manage and distribute the assets after your death. You can serve as the trustee while you’re alive and legally competent. After that, you may appoint a successor trustee — such as a trusted family member, friend, attorney, CPA, or financial institution.

Because a living trust is revocable, you can amend or cancel it at any time during your lifetime.

What are the tax implications?

For federal income tax purposes, the IRS doesn’t treat the living trust as separate from you while you’re alive. You’ll continue to report all income and deductions from the trust’s assets on your personal tax return.

However, under state law, the trust is recognized as a separate entity. When structured properly, this allows your estate to bypass probate, helping to ensure a more private and efficient distribution of your assets.

Upon your death, assets in the trust are generally included in your estate for federal estate tax purposes. However, any assets passed to a surviving spouse who’s a U.S. citizen qualify for the unlimited marital deduction, which exempts them from estate tax.

It’s also important to note that the current high federal estate tax exemption is set to expire at the end of 2025, unless Congress extends it. Under “The One, Big, Beautiful Bill,” which recently passed the U.S. House of Representatives, the federal gift and estate tax exemption would be increased to $15 million per individual in 2026. This amount would be permanent but annually adjusted for inflation. The bill is now being considered by the Senate. Keep in mind that the pending legislation could change.

Are there any common pitfalls to avoid?

While a living trust is a powerful tool, it’s only effective when properly executed. Here are some common mistakes to avoid:

Outdated beneficiary designations. The beneficiaries named on retirement accounts, life insurance policies, and brokerage accounts override your trust. Make sure your designations align with your overall estate plan.
Jointly owned property. Real estate held as “joint tenants with right of survivorship” automatically passes to the surviving co-owner, regardless of what your trust says.
Failing to transfer assets. Simply creating a trust isn’t enough. You must formally transfer ownership of assets to the trust. Failing to do so means those assets may still be subject to probate.

When is more planning needed?

Although a living trust helps avoid probate, it doesn’t reduce estate or inheritance taxes. If your assets exceed the current exemption or if state estate taxes apply, additional strategies (such as irrevocable trusts, charitable giving, or gifting) may be necessary.

Not a one-size-fits-all solution

A living trust is an estate planning tool that can simplify the transfer of your assets, protect your privacy, and avoid probate. However, it’s not a one-size-fits-all solution. To make the most of your estate plan and stay ahead of changing tax laws, consult with us or an estate planning attorney.

Don’t forget income taxes when planning your estate

September 23, 2022/in News, Tax Tips - Individual/by Betty Kim

As a result of the current estate tax exemption amount ($12.06 million in 2022), many estates no longer need to be concerned with federal estate tax. Before 2011, a much smaller amount resulted in estate plans attempting to avoid it. But now, because many estates won’t be subject to estate tax, more planning can be devoted to saving income taxes for your heirs.

While saving both income and transfer taxes has always been a goal of estate planning, it was more difficult to succeed at both when the estate and gift tax exemption level was much lower. Here are three considerations.

Plan gifts that use the annual gift tax exclusion. One of the benefits of using the gift tax annual exclusion to make transfers during life is to save estate tax. This is because both the transferred assets and any post-transfer appreciation generated by those assets are removed from the donor’s estate.

As mentioned, estate tax savings may not be an issue because of the large estate exemption amount. Further, making an annual exclusion transfer of appreciated property carries a potential income tax cost because the recipient receives the donor’s basis upon transfer. Thus, the recipient could face income tax, in the form of capital gains tax, on the sale of the gifted property in the future. If there’s no concern that an estate will be subject to estate tax, even if the gifted property grows in value, then the decision to make a gift should be based on other factors.

For example, gifts may be made to help a relative buy a home or start a business. But a donor shouldn’t gift appreciated property because of the capital gain that could be realized on a future sale by the recipient. If the appreciated property is held until the donor’s death, under current law, the heir will get a step-up in basis that will wipe out the capital gain tax on any pre-death appreciation in the property’s value.

Take spouses’ estates into account. In the past, spouses often undertook complicated strategies to equalize their estates so that each could take advantage of the estate tax exemption amount. Generally, a two-trust plan was established to minimize estate tax. “Portability,” or the ability to apply the decedent’s unused exclusion amount to the surviving spouse’s transfers during life and at death, became effective for estates of decedents dying after 2010. As long as the election is made, portability allows the surviving spouse to apply the unused portion of a decedent’s applicable exclusion amount (the deceased spousal unused exclusion amount) as calculated in the year of the decedent’s death. The portability election gives married couples more flexibility in deciding how to use their exclusion amounts.

Be aware that some estate exclusion or valuation discount strategies to avoid inclusion of property in an estate may no longer be worth pursuing. It may be better to have the property included in the estate or not qualify for valuation discounts so that the property receives a step-up in basis. For example, the special use valuation — the valuation of qualified real property used for farming or in a business on the basis of the property’s actual use, rather than on its highest and best use — may not save enough, or any, estate tax to justify giving up the step-up in basis that would otherwise occur for the property.

If you’d like to discuss these strategies and how they relate to your estate plan, contact us.

There’s currently a “stepped-up basis” if you inherit property — but will it last?

July 23, 2021/in News, Tax Tips - Individual/by Betty Kim

If you’re planning your estate, or you’ve recently inherited assets, you may be unsure of the “cost” (or “basis”) for tax purposes.

The current rules

Under the current fair market value basis rules (also known as the “step-up and step-down” rules), an heir receives a basis in inherited property equal to its date-of-death value. So, for example, if your grandmother bought stock in 1935 for $500 and it’s worth $1 million at her death, the basis is stepped up to $1 million in the hands of your grandmother’s heirs — and all of that gain escapes federal income tax.

The fair market value basis rules apply to inherited property that’s includible in the deceased’s gross estate, and those rules also apply to property inherited from foreign persons who aren’t subject to U.S. estate tax. It doesn’t matter if a federal estate tax return is filed. The rules apply to the inherited portion of property owned by the inheriting taxpayer jointly with the deceased, but not the portion of jointly held property that the inheriting taxpayer owned before his or her inheritance. The fair market value basis rules also don’t apply to reinvestments of estate assets by fiduciaries.

Gifting before death

It’s crucial to understand the current fair market value basis rules so that you don’t pay more tax than you’re legally required to.

For example, in the above example, if your grandmother decides to make a gift of the stock during her lifetime (rather than passing it on when she dies), the “step-up” in basis (from $500 to $1 million) would be lost. Property that has gone up in value acquired by gift is subject to the “carryover” basis rules. That means the person receiving the gift takes the same basis the donor had in it ($500 in this example), plus a portion of any gift tax the donor pays on the gift.

A “step-down” occurs if someone dies owning property that has declined in value. In that case, the basis is lowered to the date-of-death value. Proper planning calls for seeking to avoid this loss of basis. Giving the property away before death won’t preserve the basis. That’s because when property that has gone down in value is the subject of a gift, the person receiving the gift must take the date of gift value as his basis (for purposes of determining his or her loss on a later sale). Therefore, a good strategy for property that has declined in value is for the owner to sell it before death so he or she can enjoy the tax benefits of the loss.

Change on the horizon?

Be aware that President Biden has proposed ending the ability to step-up the basis for gains in excess of $1 million. There would be exemptions for family-owned businesses and farms. Of course, any proposal must be approved by Congress in order to be enacted.

These are the basic rules. Other rules and limits may apply. For example, in some cases, a deceased person’s executor may be able to make an alternate valuation election.

Contact us for tax assistance when estate planning or after receiving an inheritance. We’ll keep you up to date on any tax law changes.

There are a lot of complexity involved here and tax laws are ever evolving. We are here to help and we also work very closely with subject matter advisors we frequently refer our clients to.

Feel free to reach out to us for resources and consultation.

Tag Archive for: Estate Planning

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