Estate Tax Planning

Last week we looked at a few benefits of Revocable Living Trusts that are applicable to individuals or couples of most any net worth.

Today's post is directed to individuals whose net estate is anticipated to be above ~$5.3M as of 2014.  This number is known as the estate tax exemption and is available for any given year on the IRS's website.  In the past 10 years, this exemption has been as low as $1.5M, so depending on what decisions congress makes in upcoming sessions, the need for estate tax planning may increasingly apply to individuals or couples with mid-range estates.

There are a variety of irrevocable trust documents which can be used to plan one's estate to legally minimize estate tax liability.  The basic goal is to systematically remove assets from your taxable estate prior to death while not inhibiting your ability to provide for needs and quality of life in the mean time.

• By making use of the annual gift exclusion ($14,000 per donor per recipient in 2014), you may be able to shift ownership of assets without incurring gift or estate taxation on the transfer.  A married couple with 2 married children and 4 grand children would be able to gift a total of $168,000 per year tax free. 

• With enough advance planning, wise transfers of assets that are likely to appreciate in value into a GRAT or Granter Retained Annuity Trust can shield your estate from the inclusion of the appreciated value.

• If you have a particular interest in leaving a portion of your estate to one or more charitable organizations, unique trust instruments such as the CRAT (charitable remainder annuity trust) or the CRUT (charitable remainder unitrust) make doing so tax advantageous.  

An experienced Estate Tax attorney can help you analyze which assets you have that might be best suited for inclusion in an irrevocable living trust as well as what trust instruments might help serve your individual interests.

Will/Trust Considerations

So you've made an appointment to meet with your attorney regarding your Estate Plan?  Here are a few things to consider when determining your desired distributions....

1. What do you own?
1. This can include real estate, investments, cash, jewelry, guns, artwork, life insurance policies, the family business, and an almost unlimited list of other assets.
2. How do you own these items?
1. Joint Tenancy
2. Tenants in Common
3. Tenancy by the Entirety
4. Marital Property
5. Separate (non-marital property)
3. Do you have minor children?
1. If so, who would care for them in your absence?
2. Do you feel comfortable with them (or any other beneficiary) receiving the full payout of inherited money when they turn 18?  
4. Who should get each of your assets in #1 above?
5. What happens if a desired beneficiary 
1. is dependent on governmental need-based benefits and will be disqualified by an inheritance?
2. has proven irresponsible with money and would not have the skills or sophistication to manage an inheritance?
3. Is indebted and would loose any inheritance to debtors?
4. Is a minor whose caregiver you would not trust with the assets? 
6. When should beneficiaries receive their inheritance?
1. When they turn 18?
2. 25?
3. Graduate College?
4. Get Married?
5. Some other point in time?
7. Do you anticipate relying on Medicaid at some point before your death?  
8. Who do you trust?
1. to care for your minor children (see #3.1)
2. To be responsible for distributing your assets according to your expressed wishes?
3. To manage your assets should you become incapacitated before death (in the case of an RLT)

Feel free to add any additional thoughts in the comments!