|
Top 10 Estate Planning Techniques to Consider |
|
2. Generation-Skipping Transfer (GST) Planning. Making sure you and your spouse each use your full $1,000,000 GST exemption can save your family as much as $1,100,000 in taxes over one generation. Taking advantage of generation-skipping through the use of trusts simply means skipping the payment of taxes, not the skipping of benefits for the next generation. Because the beneficiaries can be their own trustees and be given powers of appointment, they can control the investments and the ultimate disposition of the assets. Enhanced savings are available by having the trust continue for the maximum period permitted by the rule against perpetuities or by funding the trust with split-dollar insurance, discounted partnership interests, or the remainder interest in a charitable lead trust. 3. Family Limited Partnerships (FLPs). Giving limited partnership interests instead of outright ownership of particular assets generally results in substantial valuation discounts. Apart from the transfer tax savings, a limited partnership offers a good vehicle to manage assets over an extended period of time and helps protect the assets from the claims of the partners' creditors and from interference by the partners' spouses. If environmental or other potential liabilities are an issue, a limited liability company (LLC) can be used. 4. Charitable Lead Trusts. This technique allows you to "discount" the value of the gift by the actuarial value of the charitable annuity or unitrust amount payable for your life or other term. The charitable lead trust has an advantage over an outright charitable gift or a charitable remainder trust, as the lead trust allows you to keep the capital in the family. Your own private foundation can be the charitable recipient. 5. Private Foundations. A private foundation creates flexibility in charitable giving and permits the family to continue as stewards over that part of the family wealth transferred to the entity by outright gifts, bequests, or charitable lead or remainder trusts. 6. Grantor Retained Annuity Trusts (GRATs). Your retained right to receive an annuity for a fixed period acts as a discount in valuing the gift. GRATs, particularly short-term ones with high payout rates, afford great leverage and flexibility and offer an alternative to charitable lead trusts for those who have little or no charitable motivations. 7. Qualified Personal Residence Trusts (QPRTs). This is a way to give away your principal or secondary residence, or both, subject to your right to occupy the home for a fixed period. Thereafter, you can rent the house from your children or other beneficiaries. 8. Split-Dollar Life Insurance. For business owners, life insurance owned by a GST trust and paid for by the business offers an attractive way to buy substantial amounts of insurance with only a negligible use of GST exemption. Greater leverage is present with second-to-die arrangements. 9. Intrafamily Sales. Selling an appreciating asset or a remainder interest in such an asset to a family member or trust for an installment note is a way to "freeze" your estate because the note will not grow in value beyond any interest that is accrued and compounded. Triggering a future capital gain at the reduced rates offered by the 1997 Act may be less costly than an estate tax assessed against an appreciating asset. Selling for a private annuity or self-canceling note can produce greater savings. 10. Applicable Federal Rate (AFR) Loans. By making loans accruing the lowest interest required by the IRS, you are likewise "freezing" your estate while allowing your family members to make equity investments in their own names and otherwise to enjoy the economic benefits of your wealth without the payment of gift taxes. |
