How trusts can be utilized to counter tighter property taxes

Upcoming estate planning should be a concern for high net worth clients as the tax landscape changes as Biden is managed.

The inheritance tax exemption imposed by the Tax Cut and Employment Act will expire in five years – possibly sooner as the new Congress prepares for a tax review in Biden. “There are legitimate concerns that the exemption … may be as low as $ 3 million,” said Mike Winn, managing partner, corporate succession and planning for Audent Family Wealth Advisors in Los Angeles.

For high net worth clients, planning now requires a broader understanding of trusts, changing gift habits, and covering the basics of existing plans, the advisors said.

“You are also forced to address issues that are emotional and sometimes painful to discuss, such as your death, frailty in old age and sometimes skeletons in the family closet,” said Michelle Clary, CEO and Senior Wealth Advisor, Piton Wealth, Thrivent Advisor Network in Kennewick, Washington.

Clary said her firm has been using disclaimer-funded bypass trusts for the past decade in the expectation that federal tax exemption will one day decrease.

“Now is the time to consider estate and gift planning techniques such as granting retirement benefits,” said Brent Lipschultz, National Tax Group partner and personal financial advisor on international taxes for EisnerAmper in New York. “Spousal Limited Access Trusts (SLATs) should also be considered when a couple is concerned about future cash flow.”

A SLAT is an irrevocable trust in which one spouse makes a gift in a trust that benefits the other spouse while maintaining restricted access to the assets and removing the assets from their combined estates. A spouse can “benefit indirectly” as long as the non-donor spouse remains married to the donor, Lipschultz said.

“If the spouse / beneficiary, the donor’s spouse or spouse’s divorce dies prematurely, that indirect access disappears,” added Karen L. Goldberg, who is responsible for the Trusts and Estates group in EisnerAmper’s New York office. “For this reason, both spouses typically set up SLATs for each other, understanding that the trusts must be different enough [to] Remove the trust assets from the estate of the donor spouse. “

Instruments that can be used to give away more than the Estate / Gift Tax Exemption also include the Grantor’s Withheld Annuity Trust (GRAT) and Sale to an Intentionally Defective Trust (IDGT). They are “very effective in our historically low interest rate environment,” Goldberg said. With a GRAT, the customer transfers ownership to a trust for an annual fixed payment. With a sale to an IDGT, the customer is selling property to a trust in exchange for a balloon note, she said.

For both 2020 and 2021, the annual gift tax exclusion is $ 15,000 per donor and recipient. “The relatively simple strategy of aggressive lifelong gift giving using the $ 15,000 per year exclusion shouldn’t be overlooked,” said Clary. With a large family in particular, this annual aggregate can add up quickly and be an effective way to get money out of a taxable estate, he said.

Brian Corrigan, partner at New York law firm Farrell Fritz and probate specialist, advises clients to stop willers objecting to an early probate review. Lawyers should document how the lawyer-client relationship came about and how drafts and correspondence with the client were reviewed.

Protection of the will itself by noting communications, time entries, correspondence, or notes pertaining to the execution will be sought upon discovery, Corrigan said. Other people who have access to the customer’s papers could steal or destroy the original.

Review an estate plan at least every five years – sooner if tax law or family circumstances change, advisors said. The jurisdiction in which the trust is structured can also be critical, Winn said. “There are a number of other states where trusts are perpetual. This can be especially beneficial in a state like Wyoming or Delaware, which not only allows perpetual trusts but also has no state income tax, ”he said.

Having a living trust can help avoid willing a will and pass the wealth directly on to the heirs, Winn said. “Over time, most estate plans become very fragmented,” he added.

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