Attorney Helping High Net Worth Clients in St. Andrews Country Club With Their Advanced Estate Planning Needs
Individuals and families with significant assets typically require more complex, sophisticated and personalized estate planning strategies. Mr. Asarch provides his high net worth clients in the St. Andrews Country Club area with several alternative ideas based upon his deep understanding of federal gift, estate, generation-skipping transfer tax laws, fiduciary income tax rules, and asset protection strategies. Mr. Asarch advises his clients on the most efficient and effective tools to achieve their wealth preservation goals. Below are just some examples of those strategies.
Family Limited Partnerships (“FLP”) and Family LLCs
The FLP can reduce federal gift, estate and generation-skipping transfer taxes (“transfer taxes”) while offering significant protection from any future creditors of the FLP’s owners. A major advantage of an FLP is the ability to discount the value of assets for transfer tax purposes while still retaining control over the entity. An FLP can own many types of assets, such as businesses, investment real estate properties, and marketable securities.
Additionally, the FLP structure allows for the owners to give fractional interests in the entity to children and grandchildren (or to trusts for their benefit) at a significant discount from the value of the underlying assets. The recipients of these limited interests will not be able to participate in the management of the FLP, and there will be restrictions on their ability to sell their interests. Due to these limitations, the IRS allows these limited interests to be valued significantly below the market value of the FLP’s underlying assets. Such discounts would reduce the value of the limited interests you might give away during your life and the remaining interests you still own upon your death.
An FLP also offers protection from the claims of future creditors. Even if a creditor wins a judgment against one or more of the limited partners, that judgment may not be satisfied with the FLP’s assets. The judgment creditor may only be able to receive a “charging order” or lien on the limited interest, but they will not gain access to the assets or the management of the FLP.
Dynastic (Generation Skipping) Trusts (“Dynasty Trust”)
A Dynasty Trust is an irrevocable trust intended to last for a long period of time, sometimes indefinitely, while making family wealth accessible to future generations and circumventing federal transfer taxes. Florida law states that a Dynasty Trust may last for up to 360 years. You may choose to establish and fund a dynastic trust during your lifetime, or you may establish one in your last will, activated upon your passing. The most efficient funding of these trusts is with a gift (or bequest) of any amount equal to or less than your remaining lifetime exemptions from federal transfer taxes (i.e., gift, estate and generation skipping transfer taxes). Current law specifies that each person has a lifetime exemptions from gift, estate and generation skipping transfer tax of $11,180,000, or$22,360,000 for a married couple. A Dynasty Trust also may be structured to protect the assets in the trust from the possibility of future creditor claims against the trust’s beneficiaries for generations.
A grantor trust is a trust in which the trust’s creator (the grantor) or someone else retains certain rights and powers, allowing the grantor to be considered as the owner of the trust’s assets for income tax purposes. Grantor trusts can be used for many estate planning purposes, but two of the more common uses are installment sales to grantor trusts and grantor retained annuity trusts.
Installment Sales to Intentionally Defective Grantor Trusts (“IDIT”)
If you have appreciating assets that produce income (e.g., a business, investment real estate property, etc.) that you want to transfer to your children, you could sell that asset (or a fractional interest thereof) to a grantor trust in exchange for a promissory note, which effectively “freezes” the value of the asset for estate tax purposes. The income from the asset (e.g., dividends, net rents, etc.) would then be used to pay the promissory note’s interest and principal payments. As a result, you would receive a steady income stream for many years, your children would enjoy ownership of the asset as beneficiaries of the trust, and the property or asset would not be part of your estate. Additionally, the asset could continue to grow and benefit your descendants without being subject to reduction for transfer taxes. Importantly, as the grantor trust assumes ownership of the asset, there is no capital gains tax generated by the installment sale and you will only owe income tax on the income of the underlying asset but not on the note interest.
Grantor Retained Annuity Trust (“GRAT”)
A GRAT is a grantor trust into which the grantor transfers (i.e., gifts) an asset and receives an income stream based on the initial value of the asset. A GRAT allows for the discounting of gifts you to transfer to your descendants, and it serves as a type of “split interest” trust in which the IRS assigns a portion of the asset’s value you (i.e., the annuity payments) and the remaining interest to the trust beneficiaries, which is the value of the taxable gift. GRATs work best when they are funded with appreciating assets in a low interest rate environment.
Qualified Personal Residence Trusts (“QPRT”)
If you have a valuable home or vacation property that you would like to keep within the family and reduce expensive federal transfer taxes, a QPRT can help you fulfill your wealth preservation goals. When you establish a QPRT, you can transfer your residence to the trust and still remain in the residence rent-free for a period of years (which you would determine and specify in advance). The property will no longer be considered a part of your estate, and the value of the gift transfer to the QPRT is subject to a considerable discount Once the specified years are up, the property will either be transferred outright to or remain in further trust to one or more of your descendants. A Florida principle residence that is transferred to a QPRT retains full homestead status and enjoys the associated benefits.
Charitable Giving Techniques
If it is your wish to benefit one or more charitable organizations, there are several tax efficient strategies that can help you accomplish these goals, including but not limited to the following:
Charitable Remainder Trust (“CRT”)
Funding a CRT with appreciated assets (e.g., marketable securities, etc.) can help you achieve considerable tax benefits. You can retain an income stream for the duration of your life (and, if you so wish, the life of a spouse or a child), avoid the capital gains tax on the sale of the appreciated assets by the CRT and receive a current charitable income tax deduction. Upon your death (or the death of the surviving income recipient) the CRT’s assets will be transferred to the charitable organizations of your choice, and they will not be subject to estate taxes.
Here, you contribute assets to your own private foundation, designate the directors or trustees of your choosing to manage it, and receive a current income tax charitable contribution deduction for the full value of the contributed assets. It is important to remember that the foundation must give away 5 percent of the value of the foundation’s assets to public charities each year. If you are interested in involving your children and grandchildren in the world of charitable giving, a private foundation is a wonderful option.
Donor Advised Fund (“DAF”)
You can create a DAF with a public charity or with a DAF management company. Then, you can contribute cash or other securities to the DAF and receive a current income tax charitable contribution deduction for the full value of the contributed property. A DAF offers more flexibility and is generally easier to administer than a private foundation;.DAFs have no annual minimum public charity contributions, and the company that holds the DAF funds will oversee the administration.
Irrevocable Life Insurance Trusts (“ILIT”)
If you are looking for a simple way to provide liquidity to your loved ones when you pass away, life insurance can be used as an untaxed fund from which to pay estate or even income tax liabilities. While you can’t serve as the trustee of the ILIT, you can name your spouse, an adult child, a friend, or financial institution to serve as one. Upon your death, any death benefits are deposited into the ILIT and held in the trust for the benefit of those individuals you have designated as beneficiaries of the trust. If you name your spouse as your beneficiary, they will receive incremental payments over time instead of a lump sum, allowing them to avoid being taxed as part of their eventual estate.