Legal-Ease: What Happens When You Are Sole Beneficiary of a Trust?
Dear Jonathan: My mother, who recently passed away, prepared a trust naming me as her sole beneficiary. She intentionally disinherited my brother due to a falling out they had years ago. Although he knows that he has been disinherited, I am uncomfortable getting my mom’s entire estate and would like to provide for him somehow.
Can I give him a portion of the assets in her trust even though she did not name him as a beneficiary? In other words, can I ignore the terms of the trust and include my brother as a beneficiary?
Jonathan: No. When your mom passed, the trust became irrevocable and could no longer be amended. Consequently, you cannot include your brother as a beneficiary of the trust. However, there is nothing to prevent you from making a gift to your brother of a portion of the assets you receive from the trust. Before doing so, however, you need to be aware of the potential gift tax consequences of making a gift to your brother.
In 2024, you are allowed to make tax free gifts of up to $18,000 per person. This is known as the *gift tax annual exclusion amount. This means that the first $18,000 of the gift you make to your brother will be tax free. Any amount in excess of that $18,000 will be considered to be a taxable gift, which you will need to report to the IRS by filing a gift tax return. Your accountant or CPA will be able to prepare and file that gift tax return on your behalf should it become necessary.
Even though the excess gift over the exclusion amount is taxable and is reportable to the IRS, you don’t have to pay a gift tax. Instead that excess amount is deducted from your **combined lifetime gift and federal estate tax exclusion which is currently $13.61 million for individuals ($27.22 for couples) - this is the total amount you can give away during your lifetime or upon your death without incurring federal estate or gift taxes.
* This amount is scheduled to increase to an estimated $19,000 in 2025.
** This amount is scheduled to be reduced to an estimated $7 million for individuals ($14 million for couples) at the end of 2025 unless Congress takes action.
Jonathan J. David is a shareholder with Foster Swift Collins & Smith, PC and has extensive experience preparing a wide variety of lifetime and estate planning documents such as wills, trusts, durable powers of attorney for both financial and health care matters and living wills. Jonathan practices in the firm's Grand Rapids office:
Office - 1700 East Beltline, N.E., Suite 200 Grand Rapids, MI 49525
Phone - 616.726.2243
Email - jdavid@fosterswift.com
THE INFORMATION CONTAINED IN THIS ARTICLE IS NOT TO BE CONSTRUED AS LEGAL OR TAX ADVICE OR LEGAL OR TAX REPRESENTATION AND SHOULD NOT BE RELIED UPON AS SUCH. FURTHER, THE INFORMATION PROVIDED IS NOT STATE SPECIFIC AND CERTAIN LAWS AND CUSTOMARY PRACTICES WILL VARY FROM STATE TO STATE. IF LEGAL OR TAX ADVICE OR LEGAL OR TAX REPRESENTATION IS DESIRED, PLEASE CONSULT WITH AN ATTORNEY.
Categories: Elder Law, Estate Planning
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