Estate Tax & Beneficiary Planning

Estate tax planning may become necessary for clients with significant wealth.  Estate tax liability may occur when the value of one’s total assets, such as personal and real property, retirement accounts, and life insurance policies, exceed the federal estate tax exemption.  There are various techniques a lawyer may employ to help clients minimize or, in some circumstances, completely eliminate any estate tax liability.

Irrevocable Life Insurance Trusts (ILITs) are a commonly-used vehicle to avoid estate taxes.  Life insurance policies placed into trust are excluded from the person’s taxable estate; thus any life insurance proceeds pass tax free to the trust’s designated beneficiary.

Gifting property during one’s life is a valuable means of removing assets from the taxable estate.  The annual gift-tax exclusion allows individuals to gift, to any number of people, any amount up to the excludible amount for that year without tax consequences.  In addition, the lifetime gift-tax exclusion can be used for larger gifts.  Once the life-time gift tax exclusion is exhausted, any subsequent gift may be subject to the applicable gift-tax.

Family Limited Partnerships (FLPs) are designed around a family business or investment accounts.  FLPs pool assets into one family-owned partnership where family members own shares. Members of the older generation may gift FLP shares to younger generations at a discounted rate due to the lack of marketability of the FLP shares in addition to using the annual gift tax exemption.  FLPs are often used when the assets of the older generation’s portfolio is illiquid and complex.  As a result, it is more difficult to evaluate the value of the FLP, and thus, a larger potential for estate tax savings.

Grantor Retained Annuity Trusts (GRATs) and Qualified Personal Residence Trusts (QPRTs) are among other, more complex, tools used to remove assets from one’s taxable estate.

For charitably-inclined clients, there are a variety of methods to achieve charitable goals while maintaining income tax and/or estate tax benefits: Charitable Lead Trusts (CLTs), Charitable Remainder Trusts (CRTs), and private foundations.  These vehicles allow for individuals to gift property to a charity of his or her choice and utilize present income tax deductions.

Clients with significant retirement account balances need to be especially mindful in the estate planning process.  Choosing beneficiaries for such accounts is a major consideration.  While trusts can be designated as account beneficiaries, there are various legal issues, such as distribution requirements and income tax consequences, to confront when proceeding with this.

If you are interested in the tax planning services The Becker Law Firm provides, please contact us for a free phone consultation.