ESTATE TAX PLANNING

estate planning (n): the arranging for the disposition and management of one's estate at death through the use of wills, trusts, insurance policies, and other devices - Merriam-Webster Dictionary of Law

We help you make sense of the complex estate tax planning options that are available.

     Revocable trusts. Irrevocable trusts. Charitable remainder trusts. How do you make sense of it when you are planning your financial legacy for your heirs and future generations? 

     No matter your situation, it's our job to help you select the tax planning options that make sense for your family.

Married Couples

     A Living Trust is usually the best estate plan for married couples. A Trust allows the children to avoid the costs and delays of the probate system. Equally as important, a Trust allows parents to say when the children receive their inheritance. It is almost always a bad idea to have an 18-year-old inherit money. A Trust allows parents to set up an age distribution for children. For example, you can say; “Kids, if we die young you can only demand your inheritance in thirds, say 21, 25, and 30.” Until those ages are met, parents assign a Trustee to manage and pay for things like college and medical bills. Finally, I think the most  important decision married couples can make is who will raise their young children (i.e. the guardian). The Will, which is always prepared with your Living Trust, allows you to nominate that guardian.

Single People

     I have found that the most important concern for single people is not necessarily estate tax planning, but rather, “Who will take care of me if I am incapacitated?” Proper planning can provide great peace of mind in this regard.  With a well-drafted Will or Living Trust, and the associated documents, a single person can know exactly who is assigned to make personal, medical, and financial decisions in the case of incapacity or death. If you do not have a plan in place, the State is making the decisions, and that is not best alternative.

Children from a Prior Marriage

     When there are children from a prior marriage, it often creates a conflict of interest between what you want to do for your children and taking care of a second surviving spouse. If you leave everything to the surviving spouse, there is no guarantee that the surviving spouse will leave any assets to your children from a prior marriage. If you leave everything to the children of a prior marriage, the surviving spouse may not have enough to live on. The compromise is the QTIP Trust.  The QTIP Trust allows you to leave assets in trust for the surviving spouse’s lifetime, and at the surviving spouse’s death, the remaining principal must go to the children from the prior marriage.

Non-Citizenship

     We all pay the estate tax for the honor of dying in America. But we each, citizen or not, have an exemption from the estate tax. There are actually two exemptions: one is the current $5 million individual exemption, and the second is the unlimited marital exemption. If your estate is more than the current $5 million exempt amount, your heirs pay an estate tax. That is, unless you are leaving your estate to your surviving spouse. Your surviving spouse is entitled to an “unlimited” marital deduction. Even if your estate is $1 billion, if it goes to a surviving spouse, there is no estate tax. 

     However, a non-citizen surviving spouse is not entitled to the unlimited marital deduction. Therefore, if the surviving spouse is not a citizen, anything they inherit that is more than the exempt amount will be subject to estate taxes. To plan for this, we use a special type of Trust called a QDOT Trust. The QDOT, without going into a long explanation, allows the non-citizen spouse to be treated as if they were a citizen for estate tax purposes (i.e. no estate tax at the first death no matter how large the estate is), if they name a U.S. citizen or bank as a Co-Trustee for the overage amount.

Special Needs Trusts

     A Special Needs Trust allows a beneficiary who is receiving, or may receive, SSI or other government aid to continue receiving the aid and still inherit money. The problem is that if a special-needs beneficiary receives money from an inheritance, it removes them from eligibility for government aid. A Special Needs Trust allows a donor to place assets in Trust for a special needs beneficiary. That money can only be used for items not covered by SSI, thereby maintaining a beneficiary’s eligibility SSI eligibility.

Planning for Large Estates (High Net Worth)

     A "large estate" would include any estate where there will be an estate tax even after the exemptions are used. (Under current law, estates greater than $5M for an individual or $10M for a married couple would be subject to estate taxes.) For large estates, there are other types of Trusts and other tools we can employ to help lower the estate tax. Some of these trusts include:

  • GRATs
  • CRTs
  • Irrevocable Gifting Trusts
  • Family Limited Partnerships


     If your estate qualifies as a "large estate," contact us for a consultation, and we'll help you figure out the best combination of estate-planning tools to meet your needs.

     David Bromley has more than two decades of experience providing personal service and clear, easy-to-understand explanations of the options that best meet your estate tax planning goals. Call our office today to begin the estate-planning process for your family.

 

Our areas of expertise:

  • Revocable trusts
  • Irrevocable trusts
  • Charitable lead trusts, charitable remainder trusts
  • A/B bypass trusts
  • Irrevocable life insurance trusts (ILIT)
  • Grantor retained annuity trusts
  • Charitable gift tax strategies
  • Marital trusts
  • Medicaid sheltered trusts
  • Credit shelter trusts
  • All other types of tax planning trusts and instruments