The motivation to create an estate plan often arises from the realization that more sophisticated solutions are required for the preservation of one’s estate. Advanced estate planning may involve the creation of dynasty trusts for multiple generations, implementing strategies for protection of assets from creditors or controlling in-laws, or establishing irrevocable trusts to avoid or minimize the estate tax burden on one’s descendants. These techniques are best served within a comprehensive estate plan designed to ensure wealth preservation for generations to come.
While the estate tax exemption has been increased significantly since 2018 (the current exemption amount is $12,920,000 per taxpayer), the legislation making those changes will expire in 2025. If no successive tax legislation is enacted by then, the exemption amount will revert to about $7,000,000 per taxpayer. It is possible, of course, for Congress to enact estate tax legislation in the interim to lower that threshold even further to generate tax revenue.
The use of certain irrevocable trusts may also be restricted by future legislation. However, we continue to prepare and implement grantor retained annuity trusts (GRATs) and qualified personal residence trusts (QPRTs), since these vehicles still represent opportunities for our clients to protect appreciating investments from estate taxation before the next legislative session. The use of irrevocable life insurance trusts to provide liquidity to the beneficiaries without estate taxation is still a viable tool for affluent clients and for business succession strategies.
ASSET PROTECTION STRATEGIES
Note that these techniques generally are ineffectual where a court determines that known claims pre-dated the inception of the asset protection planning. Therefore, we will not recommend or implement asset protection strategies where the intent is to defraud creditors or government authorities, or to evade legitimate, enforceable responsibilities.
GIFT TAX EXCLUSION STRATEGIES
CHARITABLE GIFT PLANNING
It is often the nature of the asset which compels one to establish a charitable trust, such as highly appreciated but non-income producing real property. The sale of such property by the trustee following contribution will both minimize and defer the capital gains tax liability that would otherwise be imposed on the donor.
Notably, it has been our experience that clients who implement charitable giving strategies are motivated by their desire to establish a legacy for their special cause, rather than by the tax benefits to be achieved.