Different Strategies for Advanced Estate Planning
Qualified Personal Residence Trusts (QPRT)
With a QPRT, a grantor can transfer a residence into a trust for a beneficiary, while still maintaining the right to use it. This results in an exceptionally low gift tax, because the value of the gift is calculated by taking the full value of the residence placed into the truth and subtracting the value of the right of the grantor to use the residence. If the grantor lives longer than the trust term, the value of the residence, along with appreciation, are removed from the estate completely.
Grantor Retained Annuity Trust (GRAT)
A GRAT is similar to a QPRT, except it is made in regards to cash, securities, and investments. With a GRAT, the grantor sets a specific term and is able to give large gifts to loved ones without having to pay large gift taxes. A GRAT is typically set up as an annuity, where the donor is sent regular payments for the length of the term; once the term is up, the rest of the value is given to the beneficiary as a gift.
Charitable Remainder Trust (CRT)
When a CRT is established, the grantor places a certain amount of assets and/or cash into it; the grantor is then given a certain amount of income each year. This can either last for a certain term (up to 20 years), for the grantors’ entire life, or even for the life of the grantor’s spouse, children or grandchildren. When the trust ends, the remaining value in the CRT is passed along to a charity or qualified non-profit organization, with it being exempt from estate tax.
Irrevocable Life Insurance Trust (ILIT)
Due to having incidents of ownership over the proceeds of a life insurance policy, they can be subjected to estate taxes. To avoid this, you can establish an ILIT, which names a beneficiary as a trustee, effectively giving up all incidents of ownership. Once this has been accomplished, the proceeds of the life insurance policy are no longer included in the estate. Upon passing away, the insurance proceeds will be placed into the ILIT and held there for the benefit of your spouse, children, or any other beneficiaries that have been named.
Family Limited Partnerships / Corporations (FLP/LLCs)
A family limited partnership allows a family to pool its assets including investment accounts or a family business into a single family owned business partnership that family members own shares of. Interests in FLPs/LLCs can be part of lifetime gifting strategies and can allow individuals to pass interests in the entities to family members at a reduced valuation.
Gifts and Sales to Intentionally Defective Grantor Trusts (IDGTs)
A gift or sale to an intentionally defective grantor trust (IDGT) is often implemented when there is an existing FLP or LLC in place or in conjunction with the implementation of a FLP or LLC. The transaction allows for a gift or sale of assets at a reduced value to an irrevocable trust for the benefit of family members or other beneficiaries.
The above are only six different strategies that can be utilized for advanced estate planning. You could also use strategies such as, Dynasty Trust, Generation-Skipping Transfer Tax (GST) Trust, or even a Self-Cancelling Installment Note (SCIN).
