Grantor trusts are a widely used strategy in estate planning. This strategy includes transferring your assets to a trust so that all of your assets and finances do not go into limbo upon your passing. Right now, you can save in estate taxes by transferring assets to a trust. You remain the owner of the assets for income tax purposes.

Currently, the grantor of the trust continues to pay income tax on their assets without the payments being considered gifts. But the assets are still on standby, ready to be passed on to the beneficiaries of the trust.

The proposed tax plan for 2022 could change this estate planning strategy in several ways.

4 Potential Changes to Estate Planning with the 2022 Proposed Tax Changes

Meet with a trusted lawyer to change your estate plan if these tax laws go into effect in 2022. An estate plan is not something you draw up and never touch again for 30 years. This ongoing legislation is a reason to revisit your estate plan and ensure it is up to date.

  1. Reveal Total Value of Trust at Date of Death: The new tax law would require that you state the total value of assets in the trust at the date of the grantor’s death.
  2. Tax on Transactions Between Grantor and Trust: Transactions made between the grantor and trust would be subject to income tax, as if the grantor was selling to a third party.
  3. Trust Beneficiaries Taxed a Gift Tax: The money and assets passed onto beneficiaries through a trust would be subject to a gift tax instead of being tax-free.
  4. Trust Gets Taxed Once Grantor Relinquishes Control: If the grantor is still living but decided to have the trust run by a non-grantor, then the trust would be subject to taxes at that point.

Because of these changes, you have the potential to be met with taxes on assets that weren’t considered taxable in the past. Meet with a lawyer to find a new tax strategy or develop a tax payment plan for your grantor trust. Then, you will be prepared instead of caught off guard with steep tax bills should this change in the law occur.

If you have questions regarding your trust, Shoup Legal is here to assist. Contact us at (951) 445-4114 or email us at [email protected] to learn more about how we can help.