Top 10 Estate Planning Myths

Estate planning addresses many issues, from who inherits your property or handles your finances to who takes care of you if you’re incapacitated to who manages funds for a disabled child. Unfortunately, there are many myths around estate planning, as explained in the recent article “Debunking the Top 10 estate planning myths” from Insurance News Net.

Only wealthy people need estate planning. This is easily the biggest myth of estate planning. Estate planning addresses planning for incapacity and taking care of your legal and financial affairs if you can’t. It also includes planning for end-of-life care and delineating what medical procedures you want and don’t want. Estate planning also creates a plan for families with minor children, if something should happen to parents.

Having a will means avoiding probate. Probate is the court process where the court reviews your will, establishes its validity and allows your executor to administer the estate. If your goal is minimizing or avoiding probate, talk with an estate planning attorney about retitling assets and creating trusts.

You need a trust to avoid probate. A trust is only one way to avoid probate. You could consider titling assets as joint tenants with rights of survivorship, although there are risks involved in doing so. Depending on your state of residence, you might also consider various transfer-on-death arrangements. Assets with beneficiary designations, like IRAs, 401(k)s, annuities, and other financial accounts, pass directly to beneficiaries. You might also give away assets while you are living.

Putting a house in joint and survivorship ownership with an adult child will avoid probate. You may avoid probate. However, you create tremendous risk with this move. If your adult child becomes a half-owner, you’ll need their okay—and their spouse’s approval, too—to sell the house. You won’t qualify for the tax-free sale of your personal residence on half of the sale proceeds, unless your child also qualifies. If your child has financial problems or undergoes a divorce, their half ownership could be attached by creditors or be owned by an ex-spouse.

My will says who will inherit my IRA. The beneficiary designation on IRAs, life insurance and retirement accounts, and any account with a beneficiary designation overrides whatever your will says. The will does not control annuities, payable on death accounts, or transfer on death accounts and affidavits. You should check these forms periodically to ensure that the funds go where you want them to go.

I don’t need a will if my beneficiary forms are correct. However, you still need a will. For example, if a child dies before you, what happens to the assets if they were the beneficiaries? What happens to assets if a beneficiary is not of legal age and cannot inherit the money directly? Who makes decisions if there are multiple children and real estate decisions that need to be made? What if an adult child has a debt problem? Who will pay your final expenses? These are just a few issues that are addressed by wills.

A revocable trust will protect assets if I enter a nursing home. Totally wrong. Medicaid planning usually involves an Irrevocable Trust to protect assets. Revocable trusts will not make you eligible for nursing home care.

Trusts avoid probate. Assets in a trust don’t go through probate. However, it is only if the trust is funded. Assets must be immediately placed in the trust, usually through re-titling, or postmortem through beneficiary designations. Otherwise, the assets go through probate.

If my will says, “per stirpes,” my grandchildren will inherit assets if my adult children die first. This oversimplification of a complex issue is typical of estate planning myths. Grandchildren only inherit assets if the adult children die before the grandparent. If you want your grandchildren to inherit assets, you need a “bloodline” trust. An estate planning attorney will help you accomplish this.

I only need a will and a trust for my estate plan. This is another big mistake. An estate plan includes documents for incapacity and end-of-life, including Power of Attorney, Health Care Power of Attorney, Advanced Directives and a Living Will Declaration.

Reference: Insurance News Net (March 15, 2023) “Debunking the Top 10 estate planning myths”

What Strategies Minimize Estate Taxes?

The gift and estate tax benefits from the Tax Cuts and Jobs Act (TCJA) are still in effect. However, many provisions will sunset at the end of 2025, according to a recent article “Trust and estate planning strategies” from Crain’s New York Business.

The most important aspect for estate planning was the doubling of the estate, gift and generation-skipping transfer tax exemptions. Adjusted for inflation, the current federal estate, gift and GST exclusion is $12.92 million in 2023. This is more than double the pre-TCJA amount, which will return in 2026, unless Congress makes any changes.

While these levels are in effect, there are strategies to consider.

Maximize gifting up to the 2023 annual exclusion of $17,000 per taxpayer, or $34,000 for married couples.
Depending on the value of the entire estate, consider strategies to keep it below the current exemption among of $12.92 million or $25.84 (married). If the estate is less than the exemption amount, no federal estate tax will need to be paid.
Plan charitable giving, including charitable IRA rollovers to make the most of the deduction on 2023 income tax returns. Qualified charitable distributions made directly from an IRA could be used to satisfy Required Minimum Distributions (RMDs) and exclude them from taxable income.
Set up 529 Plan accounts for children and/or grandchildren and consider making five years of annual exclusion gifts. Take into account any gifts made during the year to children and/or grandchildren when doing this.
Submit tuition or any non-reimbursable medical expenses directly to the school or medical provider to avoid having these amounts count towards the annual or lifetime gift tax exemption.
Discuss the use of a Grantor Retained Annuity Trust (GRAT), an irrevocable trust created for a certain period of time. Assets are placed in the trust and an annuity is paid out every year. When the trust expires and the last annuity payment is made, assets pass to beneficiaries outright or remain in a trust for beneficiaries.
Ask your estate planning attorney if a Qualified Personal Residence Trust is a good fit for you. This is an irrevocable trust allowing homeowners to transfer their home at a significantly discounted rate.
Explore intrafamily lending, which is used to transfer partial earnings to family members without lowering the lifetime estate tax exemption or triggering gift taxes.
Re-evaluate insurance coverage, which can provide opportunities to defer or avoid income taxes, or both, and provide assets to pay estate taxes or replace assets used to pay estate taxes.

Not all of these steps will be appropriate for everyone. However, understanding the options and discussing with your estate planning attorney will ensure that you are using the most effective strategies to achieve wealth preservation.

Reference: Crain’s New York Business (Feb. 13, 2023) “Trust and estate planning strategies”

Beneficiary Battle over Presley Estate Reveals Possible Problems in Estate Planning

This is the situation facing the estate of Lisa Marie Presley, whose estate is being challenged by her mother, Priscilla Presley, as described in a recent article, “Presley beneficiary battle sets example of poor estate planning practices” from Insurance NewsNet. These situations are not uncommon, especially when there’s a lot of money involved. They serve as a teachable moment of things to avoid and things to absolutely insist upon in estate planning.

Lisa Marie’s estate is being challenged because of an amendment to the trust, which surfaced after she died. The amendment cut out two trustees and named Lisa Marie’s children as executors and trustees.

At stake is as much as $35 million from three life insurance policies, with at least $4 million needed to settle Lisa Marie’s debts, including $2.5 million owed to the IRS.

When this type of wealth is involved, it makes sense to have professional trustees hired, rather than appointing family members who may not have the skills needed to navigate family dynamics or manage significant assets.

A request to change a will by codicil or a trust by amendment happens fairly often. However, some estate planning attorneys reject their use and insist clients sign a new will or restate a trust to make sure their interests are protected. In the case of Lisa Marie, the amendment might be the result of someone trying to make changes without benefit of an estate planning attorney to make the change correctly.

The origins of the estate issues here may go back to Elvis’ estate plan. His estate was worth $5 million at the time of this death, $20 million if adjusted for inflation. His father was appointed as the executor and a trustee of the estate. His grandmother, father and Lisa Marie were beneficiaries of the trust. Lisa Marie was just nine when her famous father died, and her inheritance was held until she turned 25.

When his father died, Priscilla was named as one of three trustees. When his grandmother died, Lisa Marie was the only surviving beneficiary. She inherited the entire amount on her 25^th birthday—worth about $100 million largely at the time because of Priscilla’s skilled management.

Terminating such a large trust and handing $100 million to a 25 year old is seen by many estate planning attorneys as a big mistake. Distribution at an older age or over the course of the beneficiary’s lifetime could have been a smarter move. Lisa Marie reportedly blew through $100 million as an adult and was millions of dollars in debt, despite the estate having plenty of cash because of two large life insurance policies.

In 1993, Lisa Marie established a trust naming her mother and former business manager as trustees. The amendment in question seems to have been written in 2016, removing Priscilla and business manager Siegel as trustees, appointing Lisa Marie’s daughter and son as trustees, and naming her son and her fourteen year old twin sons as beneficiaries.

Priscilla’s attorneys say they had no prior knowledge of the change. Certain changes in estate plans require written notification of people with interest in the estate, which did not occur. They are also challenging the amendment’s authenticity, saying it was neither witnessed nor notarized. Priscilla’s name is misspelled and Lisa Marie’s signature is not consistent with other signatures of hers.

The estate is being contested, with a preliminary hearing on the matter scheduled for April 13.

Any changes to an estate plan, particularly those involving changes to the will, trusts or beneficiaries, should be done with the help of an experienced estate planning attorney. When large changes are made, or large assets are involved, a simple codicil or amendment could lead to complicated problems.

Reference: Insurance NewsNet (Feb. 17, 2023) “Presley beneficiary battle sets example of poor estate planning practices”

High Interest Rates Have an Impact on Estate Planning

The Section 7520 rate has been low for the past 15 years and presented many opportunities for good planning. What happens when inflation has returned and rates are moving up, asks a recent article titled “Estate Planning Techniques in a High—Interest—Rate Environment” from Bloomberg Tax.

The Section 7520 rate is the interest rate for a particular month as determined by the IRS. It is 120 percent of the applicable federal midterm rate (compounded annually) for the month in which the valuation date falls and rounded to the nearest two-tenths of a percent. It is used for actuarial planning, to discount the value of annuities, life estates and remainders to present value, and is revised monthly.

In January 2022, the 7520 rate was at 1.6%, but as interest rates increased, it shot up and in December 2022 was 5.2%. This was a 225% increase—unprecedented in the history of the 7520 rate. However, there are four key planning concepts which may make 2023 a little brighter for estate planning attorneys and their clients.

Higher inflation equals higher exemptions. Certain inflation adjusted exemptions and exclusions increased on January 1, 2023. The federal transfer tax exemption rose by $860,000 to $12.92 million, and the annual gift tax exclusion increased to $17,000 from $16,000 in 2022.

These increases give wealthy families the opportunity to make generous new gifts to family members without triggering any transfer taxes. Those who have fully used transfer tax exemptions may wish to consider making additional transfers.

Shift charitable giving to CRTs for higher interest rates. People who might have started Charitable Lead Trusts should instead look at Charitable Remainder Trusts. With both CLTs and CRTs, the value of the income and remainder interests are calculated using the 7520 rate. The key difference, for estate planning purposes, is the impact of a rising rate on the amount of the available charitable deduction.

The return of the QPRT. Qualified Personal Residence Trusts have been hibernating for years because of low interest rates. However, the time has come to return them to use for wealth transfer. A QPRT lets a person transfer a residence at a discounted value, while retaining the right to occupy the residence for a number of years. The 7520 rate is used to determine the value of the owner’s retained interest. The higher the rate, the more value retained by the owner and the smaller the amount of the taxable gift to the remainder beneficiaries, usually the owner’s children.

GRATs still have value. A Grantor Remainder Trust should still be considered in estate planning. A GRAT is more appealing in a low interest environment. However, a GRAT can still be useful when rates are rising. The success or failure of the GRAT usually depends on whether the assets transferred to the GRAT appreciate in value at a rate exceeding the 7520 rate, since the excess appreciation is transferred to the remainder beneficiaries gift tax-free. A GRAT can also be structured as a zeroed-out GRAT. This means that the transfer of assets to the GRAT doesn’t use any of the grantor’s transfer tax exemption or result in any gift tax due. This is still of value to a person who owns assets with significant growth potential, like securities likely to rebound quickly from depressed 2022 values.

Reference: Bloomberg Tax (Dec. 23, 2022) “Estate Planning Techniques in a High—Interest—Rate Environment”

What Does a Last Will and Testament Do?

Your will is the foundation of an estate plan, used to instruct your executor on distributing property, naming a guardian for minor children, creating a legacy and ensuring that your beneficiaries receive what you want. The will can also serve to disinherit a family member, as explained in the recent article “Last will can both include and exclude heirs” from The Record-Courier.

The process of cutting someone out of a will is known as “disinheriting.” Hurt feelings and tension among family members are inevitable when someone is disinherited. However, if the goal is to avoid litigation between family members, an experienced estate planning attorney will be needed. It takes careful planning to avoid creating a will contest. Disinheriting adult children increases the likelihood of them contesting the validity of the will.

Laws concerning inheritance rights vary. In Nevada, for instance, unless there is a prenuptial agreement, you cannot completely disinherit a spouse. Even if your will attempts to disinherit a spouse, in some cases the law will actually override the instructions in the will or trust and award a portion of the estate, known as the elective share, to a surviving spouse. If this is a concern, check with your estate planning attorney.

Adult children can be disinherited. However, minor children are often protected against disinheritance.

Parents can be disinherited if they outlive the decedent, since they are not always legally entitled to a share of their children’s estate.

Extended relatives can also be disinherited. Some estate planning attorneys will conduct a search for missing heirs or beneficiaries while preparing an estate plan to be sure there are no unknown legal heirs who might make themselves known to a decedent’s surviving spouse or other heirs.

Estranged biological children can be disinherited. However, the last will and testament must be properly prepared.

The reasons for disinheritance very from estrangement to the decedent believing their family member is financially secure and doesn’t need the inheritance. It is not necessary for the last will and testament to explain the reason for the disinheritance. However, it is advised to use a disinheritance clause to ensure the heir or beneficiary is removed and will not inherit under the will.

To protect the integrity of the will, it is also advised to include a no-contest clause in the will. This is a provision expressing a directive to eliminate the share allocated to any beneficiary who takes action to contest the testator’s intents as expressed in the will.

The last will and testament is the person’s last communication with loved ones. There is no further opportunity for clarification once they have passed. This is why it’s so important to have a will and for the will to explicitly state the names of the beneficiaries and the names of any disinherited persons.

When you meet with your estate planning attorney to create or update your last will and testament, be prepared to tell them if there are any family members who you want to disinherit, so they can create a last will and testament and an estate plan designed to withstand challenges.

Reference: The Record-Courier (Dec. 17, 2022) “Last will can both include and exclude heirs”

What Happens When Inheritances are Unequal?

In this case, one brother left New York and had nothing to do with his brother for the rest of their lives. Uneven inheritances almost always lead to poor feelings between siblings, says a recent article “Where There’s a Will, There Can Be a War” from Next Avenue.

Wills have a way of frustrating a basic desire for equal treatment among siblings. If an older sibling works in the family business and receives full control of it in the will, siblings who inherit non-voting stock are likely to feel slighted, even if they never set foot in the business. Can this be avoided?

There are a few ways to avoid this kind of outcome. One option is to name each child as a beneficiary of a life insurance policy equal to the value of the stock passed to the oldest child. In this way, all children will feel they have been fairly treated.

If one child lives closest to the parents and takes on their care in their later years, the parents often leave this child the majority of their estate. It would be helpful for parents to explain this to the other siblings, so they understand why this has been done. A family meeting in person or online to explain the parent’s decision may be helpful. This gives the children time to process the information. Learning it for the first time after the parents die can be a surprise. Combining the surprise with grief is never a good idea.

For some families, an estate planning attorney can be helpful to serve as a mediator and/or buffer when this news is shared.

In some states, wills and trusts can include no-contest clauses. These forbid beneficiaries to receive any inheritance, if they challenge the will after the death of the parent. If one child receives more than another child, the other child could lose the smaller amount if they contest the will. Some attorneys recommend leaving the children enough to make it worth their while not to engage in litigation.

When unequal is fair. There are times when uneven inheritances are entirely fair. One child may have a substance abuse issue, or one may earn a six-figure salary while the other is eking out a living in a low-paying position. The parents may wish to leave more to a struggling family member and the other child may actually be relieved because the sibling will not need their financial assistance. A conversation with the family may eliminate confusion and clarify intent.

In all cases, the heirs and those who expect to be heirs must remember the estate planning attorney who creates the will or trust works for the parent and not for them. It’s the estate planning attorney’s role to counsel their clients, which they can do best if they have the complete picture of how the family dynamics operate.

Reference: Next Avenue (Oct. 13, 2022) “Where There’s a Will, There Can Be a War”

Top 10 Success Tips for Estate Planning

Unless you’ve done the planning, assets may not be distributed according to your wishes and loved ones may not be taken care of after your death. These are just two reasons to make sure you have an estate plan, according to the recent article titled “Estate Planning 101: 10 Tips for Success” from the Maryland Reporter.

Create a list of your assets. This should include all of your property, real estate, liquid assets, investments and personal possessions. With this list, consider what you would like to happen to each item after your death. If you have many assets, this process will take longer—consider this a good thing. Don’t neglect digital assets. The goal of a careful detailed list is to avoid any room for interpretation—or misinterpretation—by the courts or by heirs.

Meet with an estate planning attorney to create wills and trusts. These documents dictate how your assets are distributed after your death. Without them, the laws of your state may be used to distribute assets. You also need a will to name an executor, the person responsible for carrying out your instructions.

Your will is also used to name a guardian, the person who will raise your children if they are orphaned minors.

Who is the named beneficiary on your life insurance policy? This is the person who will receive the death benefit from your policy upon your death. Will this person be the guardian of your minor children? Do you prefer to have the proceeds from the policy used to fund a trust for the benefit of your children? These are important decisions to be made and memorialized in your estate plan.

Make your wishes crystal clear. Legal documents are often challenged if they are not prepared by an experienced estate planning attorney or if they are vaguely worded. You want to be sure there are no ambiguities in your will or trust documents. Consider the use of “if, then” statements. For example, “If my husband predeceases me, then I leave my house to my children.”

Consider creating a letter of intent or instruction to supplement your will and trusts. Use this document to give more detailed information about your wishes, from funeral arrangements to who you want to receive a specific item. Note this document is not legally binding, but it may avoid confusion and can be used to support the instructions in your will.

Trusts may be more important than you think in estate planning. Trusts allow you to take assets out of your probate estate and have these assets managed by a trustee of your choice, who distributes assets directly to beneficiaries. You don’t have to have millions to benefit from a trust.

List your debts. This is not as much fun as listing assets, but still important for your executor and heirs. Mortgage payments, car payments, credit cards and personal loans are to be paid first out of estate accounts before funds can be distributed to heirs. Having this information will make your executor’s tasks easier.

Plan for digital assets. If you want your social media accounts to be deleted or emails available to a designated person after you die, you’ll need to start with a list of the accounts, usernames, passwords, whether the platform allows you to designate another person to have access to your accounts and how you want your digital assets handled after death. This plan should be in place in case of incapacity as well.

How will estate taxes be paid? Without tax planning properly done, your legacy could shrink considerably. In addition to federal estate taxes, some states have state estate taxes and inheritance taxes. Talk with your estate planning attorney to find out what your estate tax obligations will be and how to plan strategically to pay the taxes.

Plan for Long Term Care. The Department of Health and Human Services estimates that about 70% of Americans will need some type of long-term care during their lifetimes. Some options are private LTC insurance, government programs and self-funding.

The more planning done in advance, the more likely your loved ones will know what to do if you become incapacitated and know what you wanted when you die.

Resource: Maryland Reporter (Sep. 27, 2022) “Estate Planning 101: 10 Tips for Success”

Estate Planning Considerations for Minor Children

Creating an estate plan with minor children in mind has a host of variables quite different than one where all heirs are adults. If the intention is for the minor children to be beneficiaries, or if there is a remote chance a minor child might become an unintended beneficiary, different provisions will be needed. A recent article titled “Children need special attention in estate planning” from The News-Enterprise explains how these situations might be addressed.

Does the person creating the will—aka, the testator—want property to be distributed to a minor child? If so, how is the distribution is to occur, tax consequences and safeguards need to be put into place. Much depends upon the relationship of the testator to the minor child. An older individual may want to leave specific dollar bequests for minor children or great-grandchildren, while people with younger children generally leave their entire estate in fractional shares to their own minor children as primary beneficiaries.

While minor children and grandchildren beneficiaries are excluded from inheritance taxes in certain states, great- grandchildren are not. Your estate planning attorney will be able to provide details on who is subject to inheritance, federal and state estate taxes. This needs to be part of your estate plan.

If minor children are the intended beneficiaries of a fractional share of the estate in its entirety, distributions may be held in a common trust or divided into separate share for each minor child. A common trust is used to hold all property to benefit all of the children, until the youngest child reaches a determined age. When this occurs, the trust is split into separate shares according to the trust directions, when each share is managed for the individual beneficiary.

Instructions to the trustee as to how much of the income and principal each beneficiary is to receive and when, at what age or intervals each beneficiary may exercise full control over the assets and what purposes the trust property is intended for until the beneficiary reaches a certain age are details which need to be clearly explained in the trust.

Trusts for minor children are often specifically to be used for health, education, maintenance, or support needs of the beneficiary, within the discretion of the trustee. This has to be outlined in the trust document.

Even if the intention is not to make minor children beneficiaries, care must be taken to include provisions if they are family members. The will or trust must be clear on how property passed to minor child beneficiaries is to be distributed. This may be done through a requirement to put distributions into a trust or may leave a list of options for the executor.

Testators need to keep in mind the public nature of probate. Whatever is left to a minor child will be a matter of public record, which could make the child vulnerable to scammers or predatory family members. Consider using a revocable living trust as an alternative to safeguard the child and the assets.

Regardless of whether a will or trust is used, there should be a person named to act as the child’s guardian and their conservator or trustee, who manages their finances. The money manager does not have to be a parent or relative but must be a trustworthy person.

Review your specific situation with your estate planning attorney to create a plan to protect your minor children, ensuing their financial and lifestyle stability.

Reference: The News-Enterprise (Sep. 10, 2022) “Children need special attention in estate planning”

What Jackie Kennedy Knew about CLATs and Estate Planning

What most people don’t know about Jackie Kennedy was her role as an innovative steward of her family’s wealth and philanthropic legacy, reports a recent article from Forbes titled “Elevating Your Estate And Legacy: A Lesson From Jackie Kennedy.” After her husband’s assassination, she was in charge of a $44 million plus estate and her actions spoke volumes about her values and view for the future.

Jackie Kennedy initiated a Charitable Lead Annuity Trust (CLAT), which today many refer to as the Jackie Onassis Trust.

She created a CLAT receptacle through her will, so her children could elect to transfer some or all of their inherited assets in exchange for significant charitable, tax and non-tax benefits. They were not required to do this. However, it was an option for assets including stock, real estate and other capital. The CLAT offered her children three possible benefits: avoiding federal estate tax on all and any assets transferred to the CLAT, tax-efficient philanthropic giving for a limited number of years and continued investment of CLAT assets, which could be ultimately returned to the child or gifted to future generations at the end of the CLAT’s charitable period.

In addition, during the charitable term, the annual payments required to be distributed via the CLAT to charities would have created income tax deductions against the CLAT’s taxable income.

Despite their mother’s recommendations, the first lady’s children opted against funding the CLAT.

According to an article from The New York Times in 1996, if the Jackie Onassis Trust was worth $100 million and if the beneficiaries had executed the CLAT, the family would have inherited approximately $98 million tax-free in 2018, with charities receiving $192 million.

Instead, the children paid $23 million in estate taxes, leaving the estate with $18 million.

Besides the clear adage of “Mother knows best,” this is an example of the potential power of a CLAT to satisfy the charitable and family wealth transfer of the trust creator and individual beneficiaries. Since the 1960s, more sophisticated trust variants have been created to improve on the original CLAT.

One of these is the Optimized CLAT, a tax-planning trust which accomplishes four goals. It generates a dollar-for-dollar tax deduction in the year of funding, returns an expected 1x-5x of the initial contribution back to the contributor, immediately exempts contributed assets from the 40% federal gift and estate tax and exempts the transferred assets from the contributor’s personal creditors.

These complex estate planning strategies will become increasingly popular as federal estate taxes return to lower levels in near future. Your estate planning attorney will guide you as to which type of trust works best for you and your family, for now and for generations to follow.

Reference: Forbes (Aug. 19, 2022) “Elevating Your Estate And Legacy: A Lesson From Jackie Kennedy”

How to Plan in a Time of Uncertainty

There’s a saying in estate planning circles that the only people who pay estate taxes are those who don’t plan not to pay estate taxes. While this doesn’t cover every situation, there is a lot of truth to it. A recent article from Financial Advisor entitled “Estate Planning In This Particular Time of Uncertainty” offers strategies and estate planning techniques to be considered during these volatile times.

Gifting Assets into Irrevocable Trusts to Benefit Family Members. If done correctly, this serves to remove the current value and all future appreciation of these assets from your estate. With the federal estate tax exemption ending at the end of 2025, the exemption will drop from $12.06 million per person to nearly half that amount.

Combine this with a time of volatile asset prices and it becomes fairly obvious: this would be a good time to take investments with a lowered value out of the individual owner’s hands and gift them into an irrevocable trust. The lower the value of the asset at the time of the gift, the less the amount of the lifetime exemption that needs to be used. If assets are expected to recover and appreciate, this strategy makes even more sense.

Spousal Limited Access Trust (SLAT). This may be a good time for a related technique, the SLAT, an irrevocable trust created by one spouse to benefit the other and often, the couple’s children. Access to income and principal is created during the spouse’s lifetime. It can even be drafted as a dynasty trust. Assets can be gifted out of the estate to the trust and while the grantor (the person creating the trust) cannot be a beneficiary, their family can. Couples may also create reciprocating SLATs, where each is the beneficiary of the other’s trust, as long as they are careful not to create duplicate trusts, which have been found invalid by courts. Talk with an experienced estate planning attorney about how a SLAT may work for you and your spouse.

What about interest rates? A Grantor Retained Annuity Trust (GRAT), where the grantor contributes assets and enjoys a fixed annuity stream for the life of the trust, may be advantageous now. At the end of the trust term, remaining assets are distributed to family members or a trust for their benefit. To avoid a gift tax on the calculated remainder, due when the trust is created, most GRATs are “zeroed out,” that is, the present value of the annuity stream to the grantor is equal to the amount of the initial funding of the trust. Since you get back what’s been put in, no taxable gift occurs. The lower the interest rate, the higher the value of the income stream. The grantor can take a lower annuity amount and with decent appreciation of assets in the trust, there will be a larger amount as a remainder for heirs. Interest rates need to be considered when looking into GRATs.

Qualified Personal Residence Trust (QPRT) is a trust used to transfer a primary residence to beneficiaries with minimal gift tax consequences. The grantor retains the right to live in the house at no charge for a certain period of time. After the time period ends, the property and any appreciation in value passes to beneficiaries. The valuation for the value of the initial transfer into the trust for gift tax purposes is determined by a calculation relying heavily on interest rates. In this case, a higher interest rate results in a lower present value of the remainder and a lower gift value when the trust is created.

Reference: Financial Advisor (July 8, 2022) “Estate Planning In This Particular Time of Uncertainty”

Estate Planning Blog Articles

Estate & Business Planning Law Firm Serving the Providence & Cranston, RI Areas

Top 10 Estate Planning Myths

What Strategies Minimize Estate Taxes?

Beneficiary Battle over Presley Estate Reveals Possible Problems in Estate Planning

High Interest Rates Have an Impact on Estate Planning

What Does a Last Will and Testament Do?

What Happens When Inheritances are Unequal?

Top 10 Success Tips for Estate Planning

Estate Planning Considerations for Minor Children

What Jackie Kennedy Knew about CLATs and Estate Planning

How to Plan in a Time of Uncertainty

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Top 10 Estate Planning Myths

What Strategies Minimize Estate Taxes?

Beneficiary Battle over Presley Estate Reveals Possible Problems in Estate Planning

High Interest Rates Have an Impact on Estate Planning

What Does a Last Will and Testament Do?

What Happens When Inheritances are Unequal?

Top 10 Success Tips for Estate Planning

Estate Planning Considerations for Minor Children

What Jackie Kennedy Knew about CLATs and Estate Planning

How to Plan in a Time of Uncertainty

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