12-06-2023, 11:42 PM
The idea that "trusts are used by rich people to hide their wealth and avoid tax" is a total misconception. Trusts actually do the opposite becaue reporting requirements for trusts are a lot more rigorous than for individuals which means trust assets are far better documented than if held in your own name. And tax benefits only really apply when there is a difference between the top marginal tax rate and the trust rate. Which, recently, has only been the case for the last couple of years and ends at the end of this current year. I know it is a super common misconception, but I work with plenty of "wealthy" clients and there is no rich person loophole that allows them to avoid paying large amounts of tax.
Also, a lot of definitely not rich people have trusts (for various non-tax related reasons). The proposed "Trusts Tax" (aka the wealth tax for trusts) has no threshold (the $2/$4M applies to individuals only) with the 1.5% being on every dollar of trust assets. So a retired couple with a $1.5M house in a trust (that they live in, rather than renting out) who get the pension and a bit of interest from their $300K life savings (a super common scenario) would get stung with an annual $22,500 "wealth" tax. Sure, they'll get to defer that till they sell the house, but that still doesn't feel "fair" to me. Also, yes they could wind up the trust and transfer the house into their own names, but that'll cost them $4K+ in legal/accounting fees.
And to clarify, the lady in my earlier example who would end up paying $45K tax from $90K income lives in the home held in a trust. So she's getting no income from that property but still paying $26K tax on it. Yes, she would get a slight reduction in income tax from the updated rates, but the reduction would be $2K vs the new $26K wealth tax. And sure, you can suggest that keeping a house out of relationship property is no way to build a solid relationship with your partner, but I think she should be free to make that decision for her self, rather than be forced into having to share it based due to tax rules.
Also, a lot of definitely not rich people have trusts (for various non-tax related reasons). The proposed "Trusts Tax" (aka the wealth tax for trusts) has no threshold (the $2/$4M applies to individuals only) with the 1.5% being on every dollar of trust assets. So a retired couple with a $1.5M house in a trust (that they live in, rather than renting out) who get the pension and a bit of interest from their $300K life savings (a super common scenario) would get stung with an annual $22,500 "wealth" tax. Sure, they'll get to defer that till they sell the house, but that still doesn't feel "fair" to me. Also, yes they could wind up the trust and transfer the house into their own names, but that'll cost them $4K+ in legal/accounting fees.
And to clarify, the lady in my earlier example who would end up paying $45K tax from $90K income lives in the home held in a trust. So she's getting no income from that property but still paying $26K tax on it. Yes, she would get a slight reduction in income tax from the updated rates, but the reduction would be $2K vs the new $26K wealth tax. And sure, you can suggest that keeping a house out of relationship property is no way to build a solid relationship with your partner, but I think she should be free to make that decision for her self, rather than be forced into having to share it based due to tax rules.