Experienced Law Firm Assisting High Net Worth Clients in The Oaks With Advanced Estate Planning
High-net worth individuals deserve customized estate planning services to address their complex needs. Mr. Asarch has a thorough understanding of federal gift, estate, and generation-skipping transfer tax laws, as well as fiduciary income tax rules and asset protection policies. For clients who have a significant amount of wealth, Mr. Asarch provides practical and effective strategies to help his clients fulfill their wealth preservation goals. The following list offers a few of these strategies; for more information, contact the Law Offices of Steven J. Asarch today.
Family Limited Partnerships (FLP)
Estate planning attorneys and are increasingly turning to the FLP as a tool to help clients preserve their assets. Using a Family Limited Partnership leads to lower federal gift, estate, and generation-skipping taxes. Additionally, an FLP offers increased protection from of the FLP owners’ future creditors. A variety of assets may be included in an FLP, such as businesses, real estate properties uses for investment purposes, and other marketable securities. When establishing an FLP, the value of any assets may be discounted for transfer tax purposes without sacrificing control over the entity.
The FLP structure allows the owners to bestow fractional interests in the entity to beneficiaries, such as children, grandchildren, or trusts established in their names) at a major reduction from the underlying assets’ true value. Although the owners of these limited interests cannot participate in the FLP’s management, nor will they have full control over their ability to sell these interests, the IRS allows these limited interests to be valued much lower than the market value of the underlying assets of the FLP. Consequently, these reductions would devalue the limited interests you would potentially give away during your lifetime and any leftover interests still in your possession at the time of your death.
An FLP can offer additional protections against any claims that future creditors attempt to make. Should a creditor win a judgment against the limited partners, the creditor will be unable to access any assets or management of the FLP. Instead, they may only be issued a lien or “charging order,” while the assets remain untouchable.
Generation-Skipping Trusts (“Dynasty Trust”)
A Generation-Skipping Trust, also known as a Dynasty Trust, is designed to protect and ensure family wealth for future generations and avert federal and state transfer taxes. Currently, Florida state law allows a Dynasty Trust to last for a period of up to 360 years. You may choose to create a dynastic trust as part of the estate planning process, or you may opt to activate the trust by the terms left in your will. In order to fund a dynastic trust, you can contribute any amount that is equal to or less than your remaining lifetime exemptions from federal transfer taxes. You many also wish to establish a dynastic trust in order to prevent future creditors of your beneficiaries from accessing the assets.
Grantor Trusts
Grantor trusts establish the trust’s creator (known as the grantor) as the owner and executor of the trust’s assets for income tax purposes. Two of the most common types of grantor trusts include installment sales to intentionally defective grantor trusts (IDITs) and grantor retained annuity trusts (GRATs).
Installment Sales to Intentionally Defective Grantor Trust (IDIT)
For individuals who are owners of businesses or income-producing real estate properties and wish to transfer these assets to your children, you may consider selling the asset to a grantor trust. The grantor trust will then give you a promissory note, which freezes the asset’s value for purposes of estate taxes. Any income from the asset, such as rent or dividends, would go towards covering the payments indicated on the promissory note. Meanwhile, your income continues to flow, your beneficiaries would own the asset as granted by the grantor trust, and the property is excluded from your estate. Additionally, since the grantor trust assumes possession of the asset, you won’t owe a capital gains tax on the installment sale.
Grantor Retained Annuity Trust (GRAT)
A GRAT can be used to freeze the value of an individual’s estate by transferring some or all of the appreciation to the beneficiaries. For instance, if you have an asset that is currently worth $5 million, but you expect it to grow to be worth $8 million by next year, you can use a GRAT to shift the $3 million difference to your beneficiaries, tax-free. When establishing a GRAT, the grantor gifts an asset but still retains the right to receive an income stream over the specified term of the GRAT. Upon the expiration of the GRAT, any remaining assets are bestowed upon the grantor’s beneficiaries. However, if the grantor passes away before the trust’s expiration, the assets are absorbed by the taxable estate.
Qualified Personal Residence Trusts (QPRT)
A QRPT allows an individual to remove a real estate property from the estate in order to reduce the amount of gift taxes that are owed during the transfer of the asset to beneficiaries. If you pursue this strategy, a QRPT would be established, and you would transfer the property to the trust while you continue to live in the home rent-free for a predetermined number of years. The residence is eliminated from your taxable estate. Once the specified period ends, the residence becomes the property of your beneficiaries, or enters another trust. Depending on your circumstances and your wealth preservation goals, it is beneficial to discuss the ideal length of the trust agreement with an experienced estate planning attorney.
Charitable Giving Strategies
If you are considering incorporating charitable giving into your estate plan, there are many structures that can facilitate tax-efficient ways of fulfilling these goals. Some common techniques include:
Charitable Remainder Trust (CRT)
You can use a CRT to provide an income interest to a you or your beneficiary while allowing the remainder of the trust to support a charitable organization. While you are able to maintain a stream of income for yourself or a chosen beneficiary, you will avert the capital gains tax when the appreciated assets are sold and benefit from a charitable income tax deduction. Upon your death, the remainder of the trust will transfer to your desired charitable organization without being subject to estate taxes.
Private Foundation
When you establish your private foundation, you can make assets to it and select trustees to oversee it. The foundation is required to contribute 5 percent of the value of the foundation’s assets to at least one public charitable organization per year. In return, you receive an income tax charitable contribution deduction, and you have the opportunity to cultivate a passion for charitable giving among your children and grandchildren.
Donor Advised Fund (DAF)
A DAF may be created in conjunction with a public charity or with a DAF management company. While you contribute funds or securities to the DAF, you would receive an income tax charitable contribution deduction for the market value of the assets. DAFs are simpler to manage than a private foundation, and there is no mandatory amount of public charity contribution required. Additionally, the DAF management company will oversee the administration of the fund, which streamlines your responsibilities.
Irrevocable Life Insurance Trusts (ILIT)
An ILIT is a living trust that assumes ownership of a life insurance policy. Once you transfer the policy to the ILIT, you give up your right to modify or dissolve the trust. Although you cannot serve as the trustee, a trusted individual, such as your spouse, adult children, or an attorney can assume this role. ILITs provide a form of liquidity to your beneficiaries when you pass away. Since the ILIT assumes ownership of your policy, the policy death benefit cannot be subject to taxes upon your death, since you are no longer the policy owner.
