How to Set Up an Estate Freeze Trust

An estate freeze trust is an estate planning tool that is designed to help people avoid paying large amounts of taxes whenever they transfer assets to their beneficiaries. The special trust is a vehicle that can be used in order to transfer ownership of assets to a beneficiary, without having to pay estate taxes or gift taxes on the transfer. By transferring your assets into this type of trust, you will be able to remove the assets from your possession and convey that possession over to your beneficiaries. There are a number of different techniques that you can use in order to facilitate the estate freeze trust. Here are the basics of what an estate freeze trust is and how to set one up.

Family Limited Partnership

One of the most popular techniques are using family limited partnerships. With this type of partnership, you are going to set up a partnership where you are the general partner. You will then make your beneficiaries limited partners in the partnership. You will be able to include any assets that you want into this partnership. For example, if you were a business owner, you could put the rights to the business into this partnership. If you owned a large amount of stock that you wanted to pass on, you can also use this method.

Then, whenever you have the assets into the partnership, you can change the ownership percentage of the assets. You could reduce your ownership of the assets to as little as one percent. You could then increase the ownership of the limited partners to as much as 99 percent. This would give your beneficiaries practically full ownership of the assets and would significantly decrease the amount of estate taxes that would be applicable.

Preferred Stock

Another popular estate freeze method involves using preferred stock. If you own a large amount of common stock, you could potentially pass it on to your heirs without paying any capital gains taxes, or estate taxes. In order to do this, you will exchange your common stock for shares of preferred stock. You will do this directly with the company that issues the stock. Since you are trading two different stocks that equal the same thing, you will not have to worry about capital gains taxes on the transaction. The company can then issue shares of common stock to your beneficiaries. They will be able to benefit from the growth in the company and your shares of preferred stock will remain at a constant value.

Legal Help

In order to set up the estate freeze trust, you should contact an estate planning attorney. They will be able to navigate you through the process of drafting the appropriate documents to set up the trust and help you get it done. An attorney can help you avoid problems with the trust and they can be sure the document will hold up in court.

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