6 advanced estate planning strategies

With a new decade upon us and some significant changes to our tax code, there are a number of advanced estate planning strategies that can minimize income and estate taxes and provide asset protection.

Leaving a legacy

A family Limited Liability Company (or LLC) is often overlooked as an estate planning tool used to steward wealth transfers to multiple generations while minimizing estate taxes. An LLC is a business entity that provides asset protection and a more flexible tax and administrative structure than a corporation. LLCs can own almost any type of asset, including real property, personal property, and investments.

Shifting appreciation

A Grantor Retained Annuity Trust (or GRAT) is a trust you would establish to minimize estate tax on highly appreciating assets. The structure is as follows:

  1. You transfer assets to a GRAT you set up.
  2. Over a certain term of years that you establish, you receive assets back from the GRAT equal in value to what you transferred, plus a relatively small rate of return required by the IRS.
  3. Any value above what you get back from the GRAT (i.e. the appreciation) stays in trust for your spouse/children.

Charitable planning

A Charitable Remainder Trust (or CRT) is a powerful tool that can provide an income stream from an illiquid asset, while deferring, and in some cases minimizing, income taxes. The structure of the CRT planning process is as follows:

  1. You transfer appreciated assets to a CRT you set up and receive a charitable income tax deduction.
  2. The CRT sells the assets you contributed and pays no income tax on the gain recognized.
  3. The CRT distributes cash to you (or any other beneficiary you name) over a number of years or for the beneficiary’s lifetime.
  4. Upon the termination of the CRT, the remaining assets pass to the charities you named.


Estate tax planning with life insurance

Life insurance proceeds are subject to estate tax. An Irrevocable Life Insurance Trust (or ILIT) is a powerful planning tool available to avoid estate tax on life insurance proceeds. The ILIT planning structure works as follows:

  1. You establish an ILIT and have the ILIT purchase life insurance on your life (or you transfer an existing policy to the ILIT.
  2. You gift the ILIT cash necessary to pay premiums on the policy.
  3. Upon your death, the policy’s death benefit is paid to the ILIT and is not subject to estate tax.

Use your exemption

Spousal Lifetime Access Trusts (or SLATs) are trusts that allow you to use your historically high federal estate tax exemption (currently $11.58M). The SLAT planning structure works as follows:

  1. You transfer assets to a SLAT you set up, which uses up a portion of your federal estate tax exemption.
  2. Your spouse is the beneficiary of the SLAT and has access to the assets for his/her lifetime.
  3. Upon your spouse’s death the remaining assets pass to trusts for your children.
  4. The SLAT assets, and whatever they appreciate to during your lifetime, are not subject to estate tax.

Delayed access and creditor protection

A gifting trust is an irrevocable trust that is set up while you are alive, usually for the benefit of your children. If you gift assets directly to a child, the assets are subject to creditor claims and can be used by the child however he or she chooses. If instead, assets are gifted to a trust for the child, the assets are protected from future creditors (including a spouse).

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