Estate planning professionals say that a growing number of Floridians are moving their assets into trusts in no- or low-tax states such as Delaware, Alaska and Nevada. Those trust modifications are coming under the scrutiny of state officials, who say they are losing financial revenue through this type of trust administration tax avoidance. Still, fewer Americans are figuring out ways to bypass estate taxes, even as states attempt to tax those in the highest brackets.
Attorneys throughout the U.S. say they are seeing a rise in the new trend, which occurs when individuals shift assets from their states of residence to an out-of-state trust. If the trust’s state is tax-free, gains from the asset’s growth will not be penalized. Experts in the field say they have moved smaller estates – about $700,000 – and $500 million holdings alike into this type of trust.
The fact remains that states such as Nevada and Delaware are competing for the rights to rich Americans’ trusts, providing advantages for revocable and irrevocable trusts alike. Delaware state tax, for example, does not apply to out-of-state beneficiaries. Non-grantor trusts in that state are used to move assets outside of owner control just enough so that they will not be vulnerable to state and federal taxes. Without that protection, the trusts would be taxed at an unconscionable rate of 40 percent.
Other states are still working to stem the flow of money out of their borders, and laws may eventually go into effect to limit out-of-state trust strategies. For the time being, however, trust administration experts say that moving some Florida assets into other jurisdictions may make good financial sense. Individuals with large assets who are seeking tax protection may benefit from the assistance of a qualified estate administration attorney, who can help them learn more about their financial and legal rights.
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