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Estate Planning Actions to Consider before 2020 Ends

When it comes to estate planning, there’s no such thing as a “one-size-fits-all” solution. That is especially true before a presidential election. However, there are several factors that should be considered and discussed with your estate planning attorney, as recommended in this recent article from The National Law Review “Top Ten Estate Planning Recommendations before the End of 2020.”

The estate, gift and generational-skipping transfer tax exemption is now $11.58 million per person. It’s scheduled to increase every year by an inflationary indexed amount through 2025 and in 2026 will revert to $5 million. If Biden wins the election, don’t be surprised if changes are made earlier. The IRS has already said that if the exemption is used this year, there will be no claw back. This is a “use it or lose it” scenario. If you are planning on using it, now is the time to do so.

It is possible that Discounts, GRATS, Grantor Trusts and other estate planning techniques may go away, depending upon who wins the election and control of Congress. Consider taking advantage of commonly used estate planning tools before it is too late.

Married couples who are not ready to gift significant amounts to their children or to put assets into trusts for their children should consider the SLAT–Spousal Lifetime Access Trust. They can create and gift the exemption amount to a SLAT and still maintain access to the assets.

Single individuals who similarly are not ready to make large gifts and give up access to assets may also create and gift an exemption amount to a trust in a jurisdiction based on “domestic asset protection trust” legislation. They can be a beneficiary of such a trust.

Interest rates are at an all-time low, and that is when tools like intra family loans, GRATs and GLATs are at their best.

Moving to Florida, Nevada, Texas and other low- or no-income tax states has become very popular, especially for people who can work remotely. Be aware that high tax states like New York and California are not going to let your tax revenue leave easily. Check with your estate planning attorney to make sure you’re following the rules in giving up your domicile in a high-income tax state.

Reference: The National Law Review (Oct. 6, 2020) “Top Ten Estate Planning Recommendations before the End of 2020”

trusts

Pre-Election Estate Planning Includes a Vast Variety of Trusts

You might remember a flurry of activity in advance of the 2016 presidential election, when concerns about changes to the estate tax propelled many people to review their estate plans. In 2020, COVID-19 concerns have added to pre-presidential election worries. A recent article from Kiplinger, “Pre-Election Estate Planning Moves for High Net-Worth Families,” describes an extensive selection of trusts that can are used to protect wealth, and despite the title, not all of these trusts are just for the wealthy.

The time to make these changes is now, since there have been many instances where tax changes are made retroactively—something to keep in mind. The biggest opportunity is the ability to gift up to $11.58 million to another person free of transfer tax. However, there are many more.

Spousal Lifetime Access Trust (SLAT) The SLAT is an irrevocable trust created to benefit a spouse funded by a gift of assets, while the grantor-spouse is still living. The goal is to move assets out of the grantor spouse’s name into a trust to provide financial assistance to the spouse, while sheltering property from the spouse’s future creditors and taxable estate.

Beneficiary Defective Inheritor’s Trust (BDIT) The BDIT is an irrevocable trust structured so the beneficiary can manage and use assets but the assets are not included in their taxable estate.

Grantor Retained Annuity Trust (GRAT) The GRAT is also an irrevocable trust. The GRAT lets the grantor freeze the value of appreciating assets and transfer the growth at a discount for federal gift tax purposes. The grantor contributes assets in the trust and retains the right to receive an annuity from the trust, while earning a rate of return as specified by the IRS. GRATs are best in a low interest-rate environment because the appreciation of assets over the rate goes to the beneficiaries and at the end of the term of the trust, any leftover assets pass to the designated beneficiaries with little or no tax impact.

Gift or Sale of Interest in Family Partnerships. Family Limited Partnerships are used to transfer assets through partnership interests from one generation to the next. Retaining control of the property is part of the appeal. The partnerships may also be transferred at a discount to net asset value, which can reduce gift and estate tax liability.

Charitable Lead Trust (CLT). The CLT lets a grantor make a gift to a charitable organization while they are alive, while creating tax benefits for the grantor or their heirs. An annuity is paid to a charity for a set term, and when the term expires, the balance of the trust is available for the trust beneficiary.

Charitable Remainder Trust (CRT) The CRT is kind of like a reverse CLT. In a CRT, the grantor receives an income stream from the trust for a certain number of years. At the end of the trust term, the charitable organization receives the remaining assets. The grantor gets an immediate income tax charitable deduction when the CRT is funded, based on the present value of the estimated assets remaining after the end of the term.

These are a sampling of the types of trusts used to protect family’s assets. Your estate planning attorney will be able to determine if a trust is right for you and your family, and which one will be most advantageous for your situation.

Reference: Kiplinger (Aug. 16, 2020) “Pre-Election Estate Planning Moves for High Net-Worth Families”

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