How a Trust Can Provide Savings on Capital Gains Taxes

In recent years, the tax rates on long-term capital gains have ranged from 25 to 33 percent when combining federal, state and local rates. While the relatively new Tax Cuts and Jobs Act will offer some changes to capital gains taxes, it’s still important to know how you can limit the effect those taxes have on your estate.

There are many different strategies you may use to reduce your capital gains taxes, including the use of trusts.

Trusts for highly appreciated assets

If you and your spouse own any highly appreciated assets, one of the best strategies to help you reduce your tax burden on that appreciation is to use a special type of trust called a Joint-Exempt Step-Up Trust (JEST) or an Estate Trust. In this type of trust, if one spouse passes away the surviving spouse can sell an appreciated asset without any capital gains taxes being imposed. This means there is a “step-up” in the cost basis to the asset’s current market value after your spouse passes away.

This strategy is highly useful because of how common it is for spouses to jointly own assets. Typically a step-up in basis after a spouse’s death would only apply to 50 percent of the asset rather than its full market value, so using this type of trust gives you much greater savings.

Undoing trusts

If you already have trusts in place, you also have the option of undoing that trust. Any assets that were put into the trust might not be counted as part of your estate, so putting them back into your estate could help you avoid capital gains taxes on their appreciation.

To learn more about how you can save money on capital gains taxes, work with a trusted Florida estate planning lawyer at BaumannKangas Estate Law.